UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period endedFebruary 29, 2012 | |
[ ] | Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from __________ to__________ | |
Commission File Number:000-52494 |
Force Energy Corp.
(Exact name of registrant as specified in its charter)
Nevada | 98-0462664 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
1400 16th Street, Suite 400, Denver, CO 80202 |
(Address of principal executive offices) |
720-470-1414 |
(Registrant’s telephone number) |
_______________________________________________________________ |
(Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes [X] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
[ ] Large accelerated filer Accelerated filer | [ ] Non-accelerated filer |
[X] Smaller reporting company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 54,937,267 common shares as of March 7, 2012.
TABLE OF CONTENTS |
Page | |
PART I – FINANCIAL INFORMATION | ||
Item 1: | Financial Statements | 3 |
Item 2: | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 4 |
Item 3: | Quantitative and Qualitative Disclosures About Market Risk | 10 |
Item 4: | Controls and Procedures | 10 |
PART II – OTHER INFORMATION | ||
Item 1: | Legal Proceedings | 11 |
Item 1A: | Risk Factors | 11 |
Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 11 |
Item 3: | Defaults Upon Senior Securities | 11 |
Item 4: | Mine Disclosure Statement | 11 |
Item 5: | Other Information | 11 |
Item 6: | Exhibits | 11 |
2 |
PART I - FINANCIAL INFORMATION
Our financial statements included in this Form 10-Q are as follows:
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended February 29, 2012 are not necessarily indicative of the results that can be expected for the full year.
3 |
FORCE ENERGY CORP.
(A Development Stage Company)
February 29, 2012 and November 30, 2011
(Stated in US Dollars)
February 29, | November 30 | |||||||
2012 | 2011 | |||||||
(Unaudited) | (Audited) | |||||||
ASSETS | ||||||||
Current | ||||||||
Cash | $ | 28,583 | $ | 16,393 | ||||
Prepaid expenses | - | 1,119 | ||||||
Due from related parties - Note 8 | 7,500 | - | ||||||
36,083 | 17,512 | |||||||
Oil and gas properties, full cost method of accounting | ||||||||
Unproved Properties – Note 5 | 135,427 | 135,427 | ||||||
Mineral Property Option – Note 6 | 80,000 | 80,000 | ||||||
$ | 251,510 | $ | 232,939 | |||||
LIABILITIES | ||||||||
Current | ||||||||
Bank overdraft | $ | - | $ | - | ||||
Accounts payable and accrued liabilities | 42,457 | 48,871 | ||||||
Advances payable - Note 7 | 50,000 | 50,000 | ||||||
Due to related parties - Note 8 | - | 625 | ||||||
Convertible Notes Payable - Note 9 | 329,099 | 217,870 | ||||||
421,556 | 317,366 | |||||||
Asset retirement obligation – Note 10 | 15,051 | 13,524 | ||||||
436,607 | 330,890 | |||||||
STOCKHOLDERS’ EQUITY (DEFICIENCY) | ||||||||
Preferred stock, $0.001 par value 10,000,000 shares authorized, none outstanding | ||||||||
Common stock, $0.001 par value - Note 11 270,000,000 shares authorized 54,937,267 shares issued (November 30, 2010, - 51,237,267 shares issued) | 54,937 | 51,237 | ||||||
Additional paid in capital | 2,916,176 | 2,826,176 | ||||||
Deferred stock compensation – Note 10 | (48,400 | ) | (79,600 | ) | ||||
Deficit accumulated during the development stage | (3,107,810 | ) | (2,899,464 | ) | ||||
(185,097 | ) | (97,951 | ) | |||||
$ | 251,510 | $ | 232,939 |
Nature of Operations and Ability to Continue as a Going Concern – Note 2
See accompanying notes to the Financial Statements
F-1 |
FORCE ENERGY CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
for the three Month periods ended February 29, 2012 and February 28, 2011 and
for the period from November 1, 2006 (Date of Inception)
to February 29, 2012
(Stated in US Dollars)
(Unaudited)
November 1, | |||||||||||
2006 (Date of | |||||||||||
Three Months Ended | Inception) to | ||||||||||
February 29 | February 28 | February 29 | |||||||||
2012 | 2011 | 2012 | |||||||||
(cumulative) | |||||||||||
Expenses | |||||||||||
Accounting and audit fees | $ | 10,500 | $ | 7,450 | $ | 297,621 | |||||
Accretion of ARO | 524 | 460 | 5,443 | ||||||||
Accretion of convertible note discount | 37,681 | - | 79,801 | ||||||||
Bank charges and interest | 832 | 378 | 5,099 | ||||||||
Consulting fees | - | - | 408,500 | ||||||||
Depreciation | - | - | 4,651 | ||||||||
Interest on convertible notes | 93,703 | - | 99,453 | ||||||||
Investor relations | - | - | 61,443 | ||||||||
Legal fees | 6,806 | 4,962 | 199,611 | ||||||||
Management fees - Note 10 | 53,700 | 88,000 | 1,201,475 | ||||||||
Mineral property option costs | - | - | 59,600 | ||||||||
Mineral property exploration costs | - | - | 55,611 | ||||||||
Office expenses | 2,055 | 1,166 | 41,477 | ||||||||
Oil and gas exploration costs | - | - | 15,000 | ||||||||
Rent | 771 | 385 | 44,472 | ||||||||
Tax, penalties and Interest | - | - | 42,489 | ||||||||
Transfer and filing fees | 490 | 2492 | 79,235 | ||||||||
Travel | - | - | 10,341 | ||||||||
Write-off of oil and gas costs | - | - | 418,039 | ||||||||
Loss before other items | (207,062 | ) | (105,293 | ) | (3,129,361 | ) | |||||
Other items: | |||||||||||
Debt forgiveness | - | - | 15,286 | ||||||||
Foreign exchange gain (loss) | (1,284 | ) | (833 | ) | 6,107 | ||||||
Interest income | - | - | 158 | ||||||||
(1,284 | ) | (833 | ) | 21,551 | |||||||
Net loss and comprehensive loss for the period | $ | (208,346 | ) | $ | (106,126 | ) | $ | (3,107,810 | ) | ||
Basic loss per share | $ | (0.01 | ) | $ | (0.01 | ) | |||||
Weighted average number of shares outstanding | 54,937,267 | 51,435,045 |
See accompanying notes to the Financial Statements
F-2 |
FORCE ENERGY CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three month periods ended February 29, 2012 and February 28, 2011 and
for the period from November 1, 2006 (Date of Inception)
to February 29, 2012
(Stated in US Dollars)
(Unaudited)
Period from | |||||||||||
November 1, | |||||||||||
2006 (Date of | |||||||||||
Three Months Ended | Inception) to | ||||||||||
February 29 | February 28 | February 29 | |||||||||
2012 | 2011 | 2012 | |||||||||
(cumulative) | |||||||||||
Cash Flows provided by (used in) Operating Activities | |||||||||||
Net loss for the period | $ | (208,346 | ) | $ | (106,126 | ) | $ | (3,107,810 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
Accrued interest | 3,703 | - | 9,453 | ||||||||
Interest expense - beneficial conversion feature of convertible note | 90,000 | - | 90,000 | ||||||||
Accretion of discount on convertible notes and interest | 37,681 | - | 79,801 | ||||||||
Consulting fees paid in stock | - | - | 405,000 | ||||||||
Share based compensation | 31,200 | 66,000 | 626,600 | ||||||||
Debt forgiveness | - | - | (15,286 | ) | |||||||
Accretion expense | 524 | 1,019 | 5,440 | ||||||||
Depreciation | - | - | 4,651 | ||||||||
Write-off of oil and gas costs | - | - | 418,039 | ||||||||
Changes in non-cash working capital items related to operations: | |||||||||||
Prepaid expenses | 1,119 | (4,532 | ) | - | |||||||
Advance payable | - | 30,000 | 50,000 | ||||||||
Accounts payable and accrued liabilities | (6,414 | ) | (19,871 | ) | 18415 | ||||||
Net cash used in operating activities | (50,533 | ) | (33,510 | ) | (1,415,697 | ) | |||||
Cash Flows used in Investing Activities | |||||||||||
Acquisition of property and equipment | - | - | (4,651 | ) | |||||||
Acquisition and development costs of oil and gas properties | - | - | (387,517 | ) | |||||||
Net cash used in investing activities | - | - | (392,168 | ) | |||||||
Cash Flows provided by Financing Activities | |||||||||||
Capital stock issued | - | 50,000 | 1,419,000 | ||||||||
Convertible note payable | 127,500 | - | 297,500 | ||||||||
Due to related parties | (8,125 | ) | (8,000 | ) | 153,317 | ||||||
Settlement of Convertible note payable | (57,655 | ) | - | (57,655 | ) | ||||||
Cash acquired on reverse acquisition | - | - | 37,058 | ||||||||
Net cash provided by financing activities | 61,720 | 42,000 | 1,849,220 | ||||||||
Effect of foreign currency translation | 1,003 | - | (12,772 | ) | |||||||
Increase (decrease) in cash during the period | 12,190 | 8,490 | 28,583 | ||||||||
Cash, (Bank indebtedness) beginning of the period | 16,393 | (136 | ) | - | |||||||
Cash, end of the period | $ | 28,583 | $ | 8,354 | $ | 28,583 |
See accompanying notes to the Financial Statements
F-3 |
FORCE ENERGY CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
February 29, 2012,
(Stated in US Dollars)
(Unaudited)
Note 1Interim Reporting
The unaudited financial information furnished herein reflects all adjustments, which in the opinion of management are necessary to fairly state the Company’s financial position and the results of its operations for the periods presented. All adjustments are of a normal recurring nature. These interim financial statements should be read in conjunction with the Company’s financial statements and notes thereto included in the Company’s audited consolidated financial statements for the fiscal year ended November 30, 2011. The Company assumes that the users of the interim financial information herein have read or have access to the audited financial statements for the preceding fiscal period and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. Accordingly, footnote disclosure, which would substantially duplicate the disclosure contained in the Company’s audited consolidated financial statements for the fiscal year ended November 30, 2011, has been omitted. The results of operations for the three-month period ended February 29, 2012 are not necessarily indicative of results for the entire year ending November 30, 2012.
Note 2Nature of Operations and Ability to Continue as a Going Concern
The Company was incorporated in the state of Nevada, United States of America on November 1, 2006. The Company was formed for the purpose of acquiring exploration and development stage natural resource properties. The Company’s year-end is November 30.
Effective December 28, 2006, the Board of Directors authorized a 3 for 1 forward stock split on the common shares. The authorized number of common shares increased from 90,000,000 to 270,000,000 common shares with a par value of $0.001. All references in the accompanying financial statements to the number of common shares have been restated to reflect the forward stock split.
On February 12, 2008, the Company acquired 100% of the common shares of Force Energy Corp. an inactive company incorporated in Nevada on July 19, 2005, for $100, to effect a name change of the Company. On February 12, 2008, the Company and Force Energy Corp filed articles of merger with the Secretary of State of Nevada to effectuate a merger between the two companies. The surviving entity of the merger was the Company. Immediately thereafter the Company changed its name to Force Energy Corp.
These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next twelve months. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. At February 29, 2012, the Company has a working capital deficit of $385,473. The Company has yet to achieve profitable operations, has accumulated losses of $3,107,810 since its inception and expects to incur further losses in the development of its business, all of which casts substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related party advances, however there is no assurance of additional funding being available or on acceptable terms, if at all.
F-4 |
Note 2Summary of Significant Accounting Policies
The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and are stated in US dollars. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates, which may have been made using careful judgment. Actual results may vary from these estimates.
The financial statements have, in management’s opinion, been properly prepared within the framework of the significant accounting policies summarized below:
Development Stage Activities
The Company is a development exploration stage company. All losses accumulated since inception have been considered as part of the Company’s development stage activities.
The Company is subject to several categories of risk associated with its development stage activities. Mineral exploration and natural gas and oil exploration and production is a speculative business, and involves a high degree of risk. Many factors have a direct bearing on the Company’s prospects and there are inherent uncertainties in these activites. Mineral exploration is dependent upon finding an ore body that is economic to develop. Uncertainties that exist with nNatural gas exploration include estimating natural gas and oil reserves, future hydrocarbon production, and cash flows, particularly with respect to wells that have not been fully tested and with wells having limited production histories; access to additional capital; changes in the price of natural gas and oil; availability and cost of services and equipment; and the presence of competitors with greater financial resources and capacity.
Principles of Consolidation
These consolidated financial statements include the accounts of the Force Energy Corp and its wholly-owned subsidiaries, FRC Exploration Ltd. (a BC Corporation) (“FRC”) and Nuance Exploration Ltd. (a BC Corporation) (“NEL”). All significant inter-company balances and transactions have been eliminated.
Foreign Currency Translation
The Company’s functional currency is the Canadian dollar as substantially all of the Company’s operations are in Canada. The Company uses the United States dollar as its reporting currency for consistency with registrants of the Securities and Exchange Commission (“SEC”).
Assets and liabilities denominated in a foreign currency are translated at the exchange rate in effect at the balance sheet date and share capital accounts are translated at historical rates. Income statement accounts are translated at the average rates of exchange prevailing during the period. Translation adjustments from the use of different exchange rates from period to period are included in the Accumulated Other Comprehensive Income account in Stockholder’s Equity, if applicable. Transactions undertaken in currencies other than the functional currency of the entity are translated using the exchange rate in effect as of the transaction date. Any exchange gains and losses are included in the Statement of Operations and Comprehensive Loss.
F-5 |
Note 2Summary of Significant Accounting Policies
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided on the straight-line method over the estimated useful lives of the assets, which are generally 2 to 5 years. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income (expense).
Oil and Gas Properties
The Company follows the full cost method of accounting for oil and gas operations whereby all costs of exploring for and developing oil and gas reserves are initially capitalized on a country-by-country (cost centre) basis. Such costs include land acquisition costs, geological and geophysical expenses, carrying charges on non-producing properties, costs of drilling and overhead charges directly related to acquisition and exploration activities.
Costs capitalized, together with the costs of production equipment, are depleted and amortized on the unit-of-production method based on the estimated gross proved reserves. Petroleum products and reserves are converted to a common unit of measure, using 6 MCF of natural gas to one barrel of oil.
Costs of acquiring and evaluating unproved properties are initially excluded from depletion calculations. These unevaluated properties are assessed periodically to ascertain whether impairment has occurred. When proved reserves are assigned or the property is considered to be impaired, the cost of the property or the amount of the impairment is added to costs subject to depletion calculations.
If capitalized costs, less related accumulated amortization and deferred income taxes, exceed the “full cost ceiling” the excess is expensed in the period such excess occurs. The “full cost ceiling” is determined based on the present value of estimated future net revenues attributed to proved reserves, using current prices less estimated future expenditures plus the lower of cost and fair value of unproved properties within the cost centre.
Proceeds from a sale of petroleum and natural gas properties are applied against capitalized costs, with no gain or loss recognized, unless such a sale would alter the relationship between capitalized costs and proved reserves of oil and gas attributable to a cost centre.
Mineral Properties
Mineral property acquisition costs are capitalized in accordance with FASB ASC 930-805, “Extractive Activities-Mining,” when management has determined that probable future benefits consisting of a contribution to future cash inflows have been identified and adequate financial resources are available or are expected to be available as required to meet the terms of property acquisition and budgeted exploration and development expenditures. Mineral property acquisition costs are expensed as incurred if the criteria for capitalization are not met. In the event that mineral property acquisition costs are paid with Company shares, those shares are recorded at the estimated fair value at the time the shares are due in accordance with the terms of the property agreements.
F-6 |
Note 2Summary of Significant Accounting Policies – (cont’d)
Mineral Properties– (cont’d)
Mineral property exploration costs are expensed as incurred.
When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves and pre-feasibility, the costs incurred to develop such property are capitalized.
Estimated future removal and site restoration costs, when determinable are provided over the life of proven reserves on a units-of-production basis.
Costs, which include production equipment removal and environmental remediation, are estimated each period by management based on current regulations, actual expenses incurred, and technology and industry standards. Any charge is included in exploration expense or the provision for depletion and depreciation during the period and the actual restoration expenditures are charged to the accumulated provision amounts as incurred.
To date the Company has not established any proven or probable reserves on its mineral properties.
Impairment of Long-lived Assets
The carrying value of intangible assets and other long-lived assets are reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value. Impairment on the properties with unproved reserves is evaluated by considering criteria such as future drilling plans for the properties, the results of geographic and geologic data related to the unproved properties and the remaining term of the property leases.
Asset Retirement Obligations
Asset retirement obligations (“ARO”) associated with the retirement of a tangible long-lived asset, including natural gas and oil properties, are recognized as liabilities in the period in which it is incurred and becomes determinable, with an offsetting increase in the carrying amount of the associated assets. The cost of tangible long-lived assets, including the initially recognized ARO, is depleted, such that the cost of the ARO is recognized over the useful life of the assets. The ARO is recorded at fair value, and accretion expense is recognized over time as the discounted fair value is accreted to the expected settlement value. The fair value of the ARO is measured using expected future cash flow, discounted at the Company’s credit-adjusted risk-free interest rate.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and loss carry-forwards and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rules on deferred tax assets and liabilities is recognized in operations in the year of change. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.
F-7 |
Note 2Summary of Significant Accounting Policies – (cont’d)
Basic Loss per Share
Basic loss per share is computed using the weighted average number of shares outstanding during the period. Diluted earnings per share are computed similar to basic income per share except that the denominator is increased to include the number of common stock equivalents. Common stock equivalents represent the dilutive effect of the assumed exercise of any outstanding stock equivalents, using the treasury stock method, at either the beginning of the respective period presented or the date of issuance, whichever is later, and only if the common stock equivalents are considered dilutive based upon the Company’s net income (loss) position at the calculation date. There are no common stock equivalents outstanding and, thus, diluted and basic loss per share are the same.
Comprehensive Income
The Company is required to report comprehensive income, which includes net loss as well as changes in equity from non-owner sources.
Note 3Newly Issued Accounting Pronouncements
The Company has reviewed issued accounting pronouncements and plans to adopt those that are applicable to it. The Company does not expect the adoption of any other pronouncements to have an impact on its results of operations or financial position.
Note 4Financial Instruments
Fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk including our own credit risk.
In addition to defining fair value, the standard expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs is expanded. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels and which is determined by the lowest level input that is significant to the fair value measurement in its entirety.
These levels are:
Level 1 - inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.
Level 2 - inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
F-8 |
Note 4Financial Instruments – (cont’d)
Level 3 - inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.
The carrying value of the Company’s financial assets and liabilities consisting of cash, accounts payable and accrued liabilities, advances payable, convertible note payable and due to related parties in management’s opinion, approximate their fair value due to the short maturity of such instruments. In management’s opinion, the fair value of notes payable is approximate to carrying value as the interest rates and other features of these instruments approximate those obtainable for similar instruments in the current market. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, exchange or credit risks arising from these financial instruments.
Note 5Oil and Gas Properties
February 29, 2012 | |||||||
Canada | Total | ||||||
Unproved properties | |||||||
- acquisition costs | $ | 119,640 | $ | 488,640 | |||
- development costs | 7,365 | 36,404 | |||||
- asset retirement obligation | 8,422 | 8,422 | |||||
135,427 | 533,466 | ||||||
Written off | - | (398,039 | ) | ||||
$ | 135,427 | $ | 135,427 |
November 30, 2011 | |||||||
Canada | Total | ||||||
Unproved properties | |||||||
- acquisition costs | $ | 119,640 | $ | 488,640 | |||
- development costs | 7,365 | 36,404 | |||||
- asset retirement obligation | 8,422 | 8,422 | |||||
135,427 | 533,466 | ||||||
Written off | - | (398,039 | ) | ||||
$ | 135,427 | $ | 135,427 |
a)Hayter Prospect, Alberta, Canada
By a participation agreement dated December 21, 2006, Nuance Exploration Ltd. (“NEL”), a wholly owned subsidiary of the Company acquired a 100% ownership in the interpretation of 3D seismic data covering four sections of certain land, known as the Hayter Prospect, located in the province of Alberta, Canada by paying $82,650 (CDN$95,000) in costs of acquiring and interpreting the seismic data.
F-9 |
Note 5Oil and Gas Properties– (cont’d)
a)Hayter Prospect, Alberta, Canada– (cont’d)
On October 15, 2007, prior to the evaluation of the 3D seismic data, NEL sold to the original grantor (the Grantor) its 100% interest in the subject property and received as consideration a non-interest bearing promissory note for $111,144 (CDN$110,000) to be repaid by November 30, 2007.
On November 30, 2007, the Grantor did not pay the promissory note and NEL and the Grantor entered into a Participation Agreement whereby NEL accepted a 20% interest of the Grantor’s working interest in the County Line 10D Hayter 10-8-40-1 W4M well as full and final settlement of the promissory note totalling $95,702 after considering the effects of the foreign exchange on the note.
On October 16, 2009, the Company entered into an amendment to its Participation Agreement pursuant to which it acquired an additional 30% working interest in the Hayter Well in consideration of a release by Force from an amount of $23,938 owed by the Grantor to the Company. The Company holds a 50% working interest of the Grantor’s interest in the Hayter Well.
The addendum was subsequently amended by the parties on February 1, 2010 to replace the reference to the Company in the agreement with Nuance Exploration Ltd., the Company’s wholly owned subsidiary.
As at February 29, 2012, the 50% working interest of the Hayter Well was recorded at $135,427 (November 30, 2011:- $135,427). The company also recorded $15,051 (November 30, 2011 - $13,524) as an asset retirement obligation (Note 10).
Note 6Mineral Property
On July 6, 2010, the Company entered into a Property Option Agreement (amended May 11, 2011) to acquire an option to purchase a 100% interest in the property known as the Zoro 1 property, a mineral property comprising 52 hectares (approximately 128.50 acres) in the Snow Lake region of Manitoba Canada. In order to exercise the option, the Company must pay cash or issue stock to the Optionor by the following dates:
i) $59,600 (Cdn$62,000) on signing the agreement (paid)
ii) $102,900 (Cdn$100,000) or issue 1,000,000 shares of common stock on or before June, 15, 2011. (1,000,000 shares issued with a fair value of $80,000)
iii) $204,460 (Cdn$200,000) or issue a specified number of common shares still to be determined by the parties on or before June, 15, 2012
iv) $408,920 (Cdn$400,000) or issue a specified number of common shares still to be determined by the parties on or before June, 15, 2013
During the three month period ended February 29, 2012 the Company incurred $nil (three month period ended February 28, 2011 - $nil) of exploration expenditures on the property.
F-10 |
Note 7Advances Payable
On February 1, 2011, the Company received a cash advance of $30,000. The advance is unsecured, non-interest bearing and has no fixed repayment terms.
On March 21, 2011, the Company received a cash advance of $20,000. The advance is unsecured, non-interest bearing and has no fixed repayment terms.
Note 8Related Party Transactions
Amounts due from (to) related parties comprise:
February 29 | November 30 | ||||||
2012 | 2011 | ||||||
Amounts due from Director | |||||||
Management fees paid in advance | $ | 7,500 | $ | - | |||
Amounts due to Director | |||||||
Management fees | $ | - | $ | 625 |
All amounts due to related parties are unsecured, non-interest bearing and have no specific terms for repayment.
On July 23, 2010, the Company entered into an employment contract with a director which expires July 22, 2011. Pursuant to the contract the Director will receive $5,000 per month remuneration. On December 31, 2010 the Director resigned and the employment contract was terminated.
On August 4, 2010, the Company entered into a share for debt settlement agreement with the Company’s former President whereby 643,267 common shares having a fair value of $0.25 each were issued to settle in full management fees of $154,600 rent expense of $1,000 and other expenses owing of $5,216, an aggregate amount of $160,817.
On July 23, 2010, the Company entered into an employment contract with the Company President which expires July 22, 2011. Pursuant to the contract the President received 2,500,000 common shares having a fair value of $550,000. Should the contract be terminated prior to completion the President will return 100,000 shares to treasury for each unfulfilled month of the contract. The President will also receive $2,500 per month for months 1-3; $4,000 per month for months 4-6 and $5,000 per month for months 7-12 of the contract.
The fair value of 1,300,000 shares issued which were earned immediately have been expensed as stock based compensation of $286,000. The fair value of the remaining 1,200,000 shares issued which are to be earned over the term of the contract will be charged to operations over the life of the employment contract. This portion of the stock award is accounted for as deferred compensation whereby the fair value of the award is recorded as a component of stockholders’ equity until earned. Pursuant to this stock award the Company recorded management fees of $170,200 (year ended November 30, 2011 - $93,800).
F-11 |
Note 8Related Party Transactions – (cont’d)
On July 18, 2011, the Company entered into a new employment contract with the Company President which expires July 18, 2013. Pursuant to the contract the President received 2,500,000 common shares having a fair value of $125,000. The President will receive $7,500 per month for months 13-24 of the contract. Unless the contract is terminated by either party giving 45 days written notice the contact will automatically renew. Should the contract be renewed then the President will receive 2,500,000 shares of common stock and an annual increase of $2,500 per month upon each renewal. If the Company does not have sufficient cash resources to settle the cash element of the contract, then at the request of the President any accrued unpaid fees may be converted into common stock at $0.025 per share.
The fair value of the 2,500,000 shares issued which are to be earned over the term of the contract will be charged to operations over the life of the employment contract. This portion of the stock award is accounted for as deferred compensation whereby the fair value of the award is recorded as a component of stockholders’ equity until earned. Pursuant to this stock award the Company recorded management fees of $31,200 (three month period ended February 28, 2011 - $nil).
During the three month periods ended February 29, 2012 and February 28, 2011, the Company charged or accrued the following amounts:
Three Months Ended | |||||||
February 29 | February 28 | ||||||
2012 | 2011 | ||||||
Amounts charged by directors | |||||||
Management fees | $ | 53,700 | $ | 79,250 | |||
Amounts charged by former director and Company controlled by former director | |||||||
Management fees | - | 8,750 | |||||
Total | $ | 293,225 | $ | 88,000 |
F-12 |
Note 9Convertible Notes Payable
February 29 | November 30, | ||||||
2012 | 2011 | ||||||
Promissory Note #1 | 100,000 | 100,000 | |||||
Promissory Note #2 | - | 37,500 | |||||
Promissory Note #3 | 32,500 | 32,500 | |||||
Promissory Note #4 | 37,500 | - | |||||
Promissory Note #5 | 30,000 | - | |||||
Promissory Note #6 | 20,000 | - | |||||
Promissory Note #7 | 20,000 | - | |||||
Promissory Note #8 | 20,000 | - | |||||
260,000 | 170,000 | ||||||
Interest | 7,983 | 5,750 | |||||
Accretion expense | 61,116 | 42,120 | |||||
$ | 329,099 | $ | 217,870 |
As at February 29, 2012 and November 30, 2011 convertible notes payable are recorded net of unamortized debt and accrued interest discount of $101,821 and $6,236 respectively.
Promissory Note #1
On May 11, 2011, the Company received $100,000 cash and the Company issued a convertible promissory note in the amount of $100,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on May 10, 2013. During the three month period ended February 28, 2012 the Company accrued $1,973 (three month period ended February 28, 2011 - $nil) in interest expense.
The note may be converted at the option of the holder into Common stock of the Company. The conversion price is defined as “the lesser 50% discount to the average bid price for the shares as quoted on the OTCBB where the shares are traded for the three consecutive business days prior to the date of conversion”.
Promissory Note #2
On August 18, 2011, the Company received $37,500 cash and the Company issued a convertible promissory note in the amount of $37,500. The promissory note is unsecured, bears interest at 8% per annum, and matures on May 22, 2012. During the three month period ended February 28, 2012 the Company accrued $625 (three month period ended February 28, 2011 - $nil) in interest expense.
The note may be converted at the option of the holder into Common stock of the Company. The conversion price is 55% of the market price, where market price defined as “the average of the lowest three of the last ten closing trading prices on the OTCBB immediately prior to conversion date”. On February 15, 2012, the Company exercised its right of prepayment settlement, and the note was settled for cash consideration of $57,655
F-13 |
Note 9Convertible Notes Payable- (cont’d)
Promissory Note #3
On September 28, 2011, the Company received $32,500 cash and the Company issued a convertible promissory note in the amount of $32,500. The promissory note is unsecured, bears interest at 8% per annum, and matures on July 3, 2012. During the three month period ended February 28, 2012 the Company accrued $646 (three month period ended February 28, 2011 - $nil) in interest expense.
The note may be converted at the option of the holder into Common stock of the Company. The conversion price is 55% of the market price, where market price defined as “the average of the lowest three of the last ten closing trading prices on the OTCBB immediately prior to conversion date”.
Promissory Note #4
On January 4, 2012, the Company received $37,500 cash and the Company issued a convertible promissory note in the amount of $37,500. The promissory note is unsecured, bears interest at 8% per annum, and matures on October 6, 2012. During the three month period ended February 28, 2012 the Company accrued $459 (three month period ended February 28, 2011 - $nil) in interest expense.
The note may be converted at the option of the holder into Common stock of the Company. The conversion price is defined as “the lesser 50% discount to the average bid price for the shares as quoted on the OTCBB where the shares are traded for the three consecutive business days prior to the date of conversion”.
Promissory Note #5
On February 15, 2012, the Company received $30,000 cash and the Company issued a convertible promissory note in the amount of $30,000. The promissory note is unsecured, interest free and repayable upon demand.
The note may be converted at the option of the holder into Common stock of the Company. The fixed conversion price is $0.01 per share. Accordingly the note may be converted into 3,000,000 common shares of the Company.
Promissory Note #6
On February 15, 2012, the Company received $20,000 cash and the Company issued a convertible promissory note in the amount of $20,000. The promissory note is unsecured, interest free and repayable upon demand.
The note may be converted at the option of the holder into Common stock of the Company. The fixed conversion price is $0.01 per share. Accordingly the note may be converted into 2,000,000 common shares of the Company.
F-14 |
Note 9Convertible Notes Payable - (cont’d)
Promissory Note #7
On February 15, 2012, the Company received $20,000 cash and the Company issued a convertible promissory note in the amount of $20,000. The promissory note is unsecured, interest free and repayable upon demand.
The note may be converted at the option of the holder into Common stock of the Company. The fixed conversion price is $0.01 per share. Accordingly the note may be converted into 2,000,000 common shares of the Company.
Promissory Note #8
On February 15, 2012, the Company received $20,000 cash and the Company issued a convertible promissory note in the amount of $20,000. The promissory note is unsecured, interest free and repayable upon demand.
The note may be converted at the option of the holder into Common stock of the Company. The fixed conversion price is $0.01 per share. Accordingly the note may be converted into 2,000,000 common shares of the Company.
The Company determined that Promissory notes 5, 6, 7 and 8 should be accounted for in accordance with FASB ASC 470-20 which addresses “Accounting for Convertible Securities with Beneficial Conversion Features".The beneficial conversion feature is calculated at its intrinsic value (that is, the difference between the conversion price $0.01 and the fair value of the common stock into which the debt is convertible at the commitment date (being $0.05), multiplied by the number of shares into which the debt is convertible, The valuation of the beneficial conversion feature recorded cannot be greater than the face value of the note issued.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the three month period ended February 29, 2012 interest expense relating to the beneficial conversion feature of convertible notes of $90,000 (three month period ended February 28, 2011 - $nil) was recorded in the financial statements, with a corresponding increase to additional paid in capital.
Note 10Asset Retirement Obligation
Total future asset retirement obligations were estimated by management based on the Company’s net ownership interest, estimated costs to reclaim and abandon the wells and the estimated timing of the costs to be incurred in future periods. The Company has estimated the net present value of its total assets retirement obligations at February 29, 2012 to be $15,051 based on a total undiscounted liability of $17,500 (Cdn$17,500) in the Hayter Prospect, Alberta, Canada. These payments are expected to be made over the next seven years, with the majority of the cost incurred between 2016 and 2019.
The Company’s credit adjusted risk free rate of 15% and an inflation rate of 8% were used to calculate the present value of the asset retirement obligation.
F-15 |
Note 10Asset Retirement Obligation- (cont’d)
February 29 | November 30 | ||||||
2012 | 2011 | ||||||
Balance, beginning of period | $ | 13,524 | $ | 12,282 | |||
Liabilities incurred | - | - | |||||
Accretion expense | 524 | 1,965 | |||||
Effect of foreign exchange | 1,003 | (723 | ) | ||||
$ | 15,051 | $ | 13,524 |
Note 11Capital Stock
Authorized
10,000,000 Preferred share, par value $0.001 - none issues
270,000,000 Common shares par value $0.001 - 54,937,267 issued
Issued
During the three month period ended February 29, 2012, the Company had no stock issuances.
Note 12Subsequent Events
Subsequent events have been evaluated through March 26, 2012, the date the statements
F-16 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions.We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions.Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements.Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Company Overview
We are currently engaged in the business of identifying, evaluating, and qualifying potential natural gas and oil wells; investing in interests in those wells with the goal of producing commercially marketable quantities of oil and natural gas. We have recently expanded our business model to include the exploration of mineral claims for rare earth minerals.
The Hayter Well
We presently hold a 50% working interest of the County Line Energy Corp. interest in the Hayter Well located in Alberta, Canada.
County Line Energy Corp. is the operator of the Hayter well. The Hayter well has been cased and cemented in anticipation of the completion of the drill program. County Line plans to enter the Hayter well, perforate the potential pay zones and conduct regular production testing of the zones. Should the testing confirm adequate oil reserves and potential economic flow rates, County Line is expected to install adequate pumping equipment and other surface facilities in anticipation of the projected flow rates. Currently, there are no known oil reserves on the Hayter well.
We have not incurred any development costs on the Hayter Well for the year ended November 30, 2011 or the first quarter ended February 29, 2012. We do not anticipate immediate attention to this project, as our time and effort currently is focused on our Zoro 1 Mineral Claim.
Zoro 1 Mineral Claim
On July 6, 2010, we entered into an option agreement with Dalton Dupasquier, pursuant to which Mr. Dupasquier has granted to us the sole and exclusive right and option, exercisable in the manner described below, to acquire a 100% net undivided interest in the property known as the Zoro 1 mineral claim, located near the East Shore of Wekusko Lake in west-central Manitoba, Canada.
Amount of Payment | Date Payment is Due | |||
$59,600 | July 6, 2010 (paid) | |||
$94,958 | June 15, 2011 (paid in 1,000,000 shares of common stock) | |||
$189,915 | June 15, 2012 | |||
$379,831 | June 15, 2013 |
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We have no rights to the Zoro 1 mineral claim unless and until we exercise the option.
We acquired the option to explore the potential for deposits of lithium on the Zoro 1 mineral claim. According to the United States Geological Survey (USGS), global end-use markets for lithium include ceramics and glass, batteries, lubricating greases, air treatment, continuous casting and primary aluminum production. Batteries, especially rechargeable batteries, are the market for lithium compounds with the largest growth potential as major automobile companies pursue the development of lithium batteries to power hybrid electric cars.
In September 2009, we received a Technical Report on the Zoro 1 mineral claim. The report was authored by Mr. Mark Fedikow, PhD., P.Eng. of Mount Morgan Resources Ltd. The objectives of the report were to summarize the geology, review the historic ore reserves, and economic potential of the spodumene-bearing dykes delineated on the property and their surrounding geological environment.
An historic reserve estimate for Lithium oxide (Li2O) has been calculated on limited drilling on a single dyke on the Zoro 1 mineral claim. Drill indicated spodumene reserves coupled with data from trenching have been calculated with a total undiluted tonnage given as 1,727,550 at 0.945% Li2O. However, the historic data upon which the resource of 1,727,550 tons grading 0.945% Li2O was based is not dispositive. When the historic work was done, there was no “Qualified Person” in place, assay labs were not ISO Certified and insufficient drilling was undertaken to define the resource. It therefore became necessary to conduct more exploration activities to support the limited historic data available.
There are seven zoned pegmatite dykes on the Zoro 1 mineral claim. An exploration team explored the main dyke, located the additional seven trenches that had historically been noted on the Zoro 1 claim and produced a geologic map of each trench. Once areas of interest were located, the crew cleaned out the trenches and used a pick and shovel method to look at rocks to find pegmatite. They then took channel samples using a rock saw on historic trenches hosting pegmatite.
While exploring the main and additional seven dykes on the project area the crew identified several additional trenches that had not been noted in previous exploration programs. These findings suggest a potential for a greater amount of resource to be spread across the property, and give further encouragement for more detailed exploration.
Altogether 170 channel samples were sent for assay at Activation Laboratories in Ancaster, Ontario. The samples were analyzed to confirm historical lithium assays, and to assess the pegmatite for rare earth elements, including gold, rubidium, niobium, tantalum, tin, tungsten, and beryllium, all of which add to the prospectivity and economic viability of the Zoro 1 property.
Analysis of the channel samples collected from historic trenches in the pegmatite target has confirmed that a significant zone of lithium mineralization is present on the Zoro 1 claim. Analytical results are summarized in Table 1, which is attached to our annual report as Exhibit 99.2 that we filed with the Securities and Exchange Commission on February 23, 2012.
With the current and future importance of lithium and the mineralized zone at Zoro 1, we are now preparing for the next phase of our exploration program. This phase, which will require a drill program, will assess the third dimension of the deposit and its historic resource, and determine the economic viability of mining the resource.
We plan to continue to explore the Zoro 1 mineral claim using the Exploration Recommendations outlined by Dr. Fedikow in the NI 43-101 Technical Report, which are set forth below along with a table of recommended expenditures.
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Initially, the Zoro 1 pegmatites should be the focus of the following exploration approaches. These are as follows:
1. Trench rehabilitation including overburden stripping and washing.
2. Geologic mapping of individual trenches at a scale of 1:20.
3.Detailed geological mapping at a scale appropriate to document relevant features on the property. This will include the seven pegmatite dykes, trench locations, historic drill collars and geological attributes of the dykes. It is likely this mapping will be undertaken at a scale of 1:1000.
4.Trench and channel sampling should be undertaken to confirm historic assay results.
5.Re-log historic drill core as possible.
6.A grid should be re-established on the property and an attempt made to tie-in the collar locations of all previous drilling. This information would help to structure new diamond drill programs. Initially, an attempt should be made to re-construct the historic grid although it is unlikely this will be possible given the length of time that has elapsed since the grid was first cut.
7. The geochemistry of the spodumene with particular relevance to iron content should be evaluated. Albite-rich portions of the pegmatite should be assayed for tantalum, tin, and niobium values. Altered and mineralized wallrocks should be assayed for gold particularly where the mineral assemblage of pyrrhotite, chalcopyrite and arsenopyrite are observed. Any subsequent drill program should be accompanied by a multi-element geochemical approach to assaying core including assays for gold. This will be followed up with assays for specific metals that may be present in the pegmatite dykes. The new assay program should be accompanied by a quality assurance and quality control program.
8.Diamond drilling should initially target Dyke No. 1 with the aim of ascertaining the physical size and extent of this dyke. Additional drilling will be necessary in the vicinity of the six remaining known dykes as well as any additional lithium-bearing pegmatite uncovered during exploration on the remainder of the property.
Trench Rehabilitation, Geologic Mapping and Assays (Four Weeks) | ||||
1. Trench stripping, excavation and washing: | $ | 15,000.00 | ||
2. Field technician: $250.00/day: | $ | 7,000.00 | ||
3. General Laborers (n=2): $150.00/day: | $ | 8,400.00 | ||
4. Geologist: $400.00/day: | $ | 11,200.00 | ||
5. Assays (n=100 @ $50.00/sample): | $ | 5,000.00 | ||
Drill Program | ||||
6. Mobilization/Demobilization of equipment and crews: | $ | 10,000.00 | ||
7. Two Thousand metres of NQ coring: | $ | 250,000.00 | ||
8. Moves between holes: | $ | 25,000.00 | ||
9. Core trays and survey tool: | $ | 8,000.00 | ||
10. Room and board @ $150.00/day for 60 days: | $ | 18,000.00 | ||
11. Communications and freight: | $ | 10,000.00 | ||
12. Helicopter: | $ | 40,000.00 | ||
13. Helicopter fuel: | $ | 7,500.00 | ||
14. Geologist @ $400.00/day for 60 days: | $ | 24,000.00 | ||
15. Geologist Room and Board @ $150.00/day: | $ | 9,000.00 | ||
16. Geologist Transportation/Mobilization/Demobilization/Site access: | $ | 5,000.00 | ||
17. Assays @$50.00/sample for 300 samples: | $ | 15,000.00 | ||
18. Report preparation: | $ | 7,500.00 | ||
Sub-total: | $ | 475,600.00 | ||
Contingency @ 10%: | $ | 47,560 | ||
Total: | $ | 523,160.00 |
6 |
Anticipated Cash Requirements
We estimate that our general operating expenses for the next twelve month period to be as follows:
Estimated Funding Required During the Next Twelve Months | ||||
Expenses | Amount | |||
Management fees | $ | 150,000 | ||
Exploration expenses | $ | 523,160 | ||
Zoro 1 mineral property payment | $ | 94,958 | ||
Professional fees | $ | 120,000 | ||
General administrative expenses | $ | 80,000 | ||
Total | $ | 968,118 |
To date, we have had negative cash flows from operations and we have been dependent on sales of our equity securities and debt financing to meet our cash requirements. We expect this situation to continue for the foreseeable future. We anticipate that we will have negative cash flows during the next twelve month period.
Results of operations for the three months ended February 29, 2012 and February 28, 2011, and for the period from Inception (November 1, 2006) to February 29, 2012
Our operating results for the three months ended February 29, 2012 and February 28, 2011 are summarized as follows:
Three Months Ended | Three Months Ended | |||||||
February 29, 2012 | February 28, 2011 | |||||||
Revenue | $ | 0 | $ | 0 | ||||
Operating Expenses | $ | 207,062 | $ | 105,293 | ||||
Net Loss | $ | 208,346 | $ | 106,126 |
Revenues
We have not earned any revenues to date, and do not anticipate earning revenues until such time as we encounter commercially productive oil or gas reservoirs on our oil and gas prospects. All of our oil and gas prospects are undeveloped. We anticipate that we will have to address the cash shortfall through additional equity financings in the future. We can offer no assurance, however, that such financings will be available on terms acceptable to our company.
7 |
Expenses
Our expenses for the three months ended February 29, 2012 and February 28, 2011 are outlined in the table below:
Three Months Ended | Three Months Ended | |||||||
February 29, 2012 | February 28, 2011 | |||||||
Accounting and audit fees | $ | 10,500 | $ | 7,450 | ||||
Accretion of ARO | $ | 524 | $ | 460 | ||||
Accretion of convertible note discount | $ | 37,681 | - | |||||
Bank charges and interest | $ | 832 | $ | 378 | ||||
Consulting fees | - | - | ||||||
Depreciation | - | - | ||||||
Interest on long term debt | $ | 93,703 | - | |||||
Investor relations | - | - | ||||||
Legal fees | $ | 6,806 | $ | 4,962 | ||||
Management fees – Note 10 | $ | 53,700 | $ | 88,000 | ||||
Mineral property option costs | - | - | ||||||
Mineral property exploration costs | - | - | ||||||
Office expenses | $ | 2,055 | $ | 1,166 | ||||
Oil and gas exploration costs | - | - | ||||||
Rent – Note 6 | $ | 771 | $ | 385 | ||||
Tax, penalties and Interest | - | - | ||||||
Transfer and filing fees | $ | 490 | $ | 2492 | ||||
Travel | - | - | ||||||
Write-off of oil and gas costs | - | - |
Our operating expenses increased by $101,769 for the three months ended February 29, 2012 as compared with the three months ended February 28, 2011. The increase in our expenses in 2011 as compared with 2010 was largely a result of $93,703 that we incurred in 2011 as interest on long term debt, and $27,681 that we incurred in 2011 as an accretion of a convertible note discount.
Liquidity And Capital Resources
Working Capital
February 29, 2012 | November 30, 2011 | |||||||
Current Assets | $ | 36,083 | $ | 17,512 | ||||
Current Liabilities | $ | 421,556 | $ | 317,366 | ||||
Working Capital (Deficit) | $ | (385,473 | ) | $ | (299,854 | ) |
8 |
Cash Flows
Three Months Ended February 29, 2012 | Three Months Ended February 28, 2011 | |||||||
Cash used in Operating Activities | $ | 50,533 | $ | 33,510 | ||||
Cash used in Investing Activities | - | - | ||||||
Cash provided by Financing Activities | $ | 61,720 | $ | 42,000 | ||||
Increase (Decrease) in Cash | $ | 12,190 | $ | 8,490 |
We anticipate that we will incur approximately $750,000 for operating expenses, including, legal, accounting and audit expenses associated with our reporting requirements as a public company under the Exchange Act during the next twelve months.
Cash Used In Operating Activities
We used cash in operating activities in the amount of $50,533 during the three months ended February 29, 2012 and $33,510 during the same period ended February 28, 2011. Our net losses for the three months ended February 29, 2012 and February 28, 2011 were the main contributed reason for our negative operating cash flow for both periods. Cash used in operating activities was funded by cash from financing activities.
Cash from Financing Activities
We generated $61,720 in cash from financing activities during the three months ended February 29, 2012 compared to cash from financing activities in the amount of $42,000 during the three months ended February 28, 2011.
During the current reporting period, we issued promissory notes to foreign investors in the aggregate amount of $90,000. The notes are non-interest bearing and convertible into shares of our common stock at a fixed price of $0.01 per share. We used a portion of the proceeds of the notes to prepay an August 2011 convertible promissory note and we plan to use the balance for working capital.
We also issued a convertible promissory note in the principal amount of $37,500. The promissory note is unsecured, bears interest at 8% per annum, and matures on October 6, 2012.
We will depend almost exclusively on outside capital to pay for the continued exploration and development of our properties. Such outside capital may include the sale of additional stock and/or commercial borrowing. Capital may not continue to be available if necessary to meet these continuing development costs or, if the capital is available, that it will be on terms acceptable to us. The issuance of additional equity securities by us would result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
If we are unable to obtain financing in the amounts and on terms deemed acceptable to us, we may be unable to continue our business and as a result may be required to scale back or cease operations for our business, the result of which would be that our stockholders would lose some or all of their investment.
Off Balance Sheet Arrangements
As ofFebruary 29, 2012, there were no off balance sheet arrangements.
Going Concern
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that we will be able to meet our obligations and continue our operations for the next twelve months. Realization values may be substantially different from carrying values as
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shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should we be unable to continue as a going concern. At February 29, 2012, we have a working capital deficit of $385,473. We have yet to achieve profitable operations, have accumulated losses of $3,107,810 since our inception and expect to incur further losses in the development of our business, all of which casts substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate future profitable operations and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern but considers that we will be able to obtain additional funds by equity financing and/or related party advances, however there is no assurance of additional funding being available or on acceptable terms, if at all.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
A smaller reporting company is not required to provide the information required by this Item.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As required by Rule 13a-15 of the Securities Exchange Act of 1934, our principal executive officer and principal financial officer evaluated our company's disclosure controls and procedures (as defined in Rules 13a-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of the end of the period covered by this report, these disclosure controls and procedures were not effective to ensure that the information required to be disclosed by our company in reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities Exchange Commission and to ensure that such information is accumulated and communicated to our company's management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. The conclusion that our disclosure controls and procedures were not effective was due to the presence of the following material weaknesses in internal control over financial reporting which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both United States generally accepted accounting principles and Securities and Exchange Commission guidelines. Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated.
We plan to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending November 30, 2012, subject to obtaining additional financing: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out above are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended February 29, 2012 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.
A smaller reporting company is not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Mine Disclosure Statement
Not applicable
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Force Energy Corp. | |
Date: | March 30, 2012 |
By:/s/ Tim DeHerrera Tim DeHerrera Title:Chief Executive Officer and Director |
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