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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections. We may use words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “foresee,” “estimate” and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted. These risks and uncertainties include the following:
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The availability and adequacy of our cash flow to meet our requirements;
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Economic, competitive, demographic, business and other conditions in our local and regional markets;
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Changes or developments in laws, regulations or taxes in our industry;
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Actions taken or omitted to be taken by third parties including our suppliers and competitors, as well as legislative, regulatory, judicial and other governmental authorities;
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Competition in our industry;
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The loss of or failure to obtain any license or permit necessary or desirable in the operation of our business;
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Changes in our business strategy, capital improvements or development plans;
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The availability of additional capital to support capital improvements and development; and
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Other risks identified in this report and in our other filings with the Securities and Exchange Commission or the SEC.
This report should be read completely and with the understanding that actual future results may be materially different from what we expect. The forward-looking statements included in this report are made as of the date of this report and should be evaluated with consideration of any changes occurring after the date of this Report. We will not update forward-looking statements even though our situation may change in the future and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
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Use of Term
Except as otherwise indicated by the context, references in this report to “Company”,“FORC”,“Force Energy Corp.,”“we”, “us” and “our” are references toForce Minerals Corp.All references to “USD” or United States Dollars refer to the legal currency of the United States of America.
PART I
ITEM 1. BUSINESS
Corporate History
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 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.
Effective December 28, 2006, the Board of Directors authorized a 3 for 1 forward stock split of 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.
Effective June 28, 2013, the Company with the approval from the Financial Industry Regulatory Authority (“FINRA”), the Company has among other things (i) changed its name from “Force Energy Corp.” to “Force Minerals Corporation”, and (ii) authorized and approved a reverse stock split of One for One Hundred (1:100) of our total issued and outstanding shares of common stock (the "Stock Split"). The Stock Split decreased our total issued and outstanding shares of common stock from 230,992,890 to 2,309,928 shares of common stock. The common stock will continue to be $0.001 par value. The shareholder record date was June 14, 2013. The Stock Split shares are payable upon surrender of certificates to the Company's transfer agent. Fractional shares will be rounded upward.
On October 28, 2013, the Board of Directors of the Company with the approval of a majority vote of its shareholders, designated four million (4,000,000) shares of the ten million (10,000,000) authorized preferred stock of our company as “Series A Preferred Stock” by filing a Certificate of Designation with the Secretary of State of the State of Nevada. The Series A Preferred Stock has 100 votes per share and is convertible into shares of our common stock. The Holders of the Series A Preferred Stock, may not convert and hold more than 9.9% of the common stock outstanding at any one time.
The Hayter Well
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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, 2013.
La Predilecta Properties
On May 30, 2013, the Companyentered into a Mineral Property Acquisition Agreement (the "MPAA") with Highlander Overseas, Inc., a West Indies corporation (“Highlander”). Pursuant to the terms and conditions of the MPAA, Highlander shall grant the Company with the right to acquire one hundred percent (100%) of the mining interests in those certain four concessions known as La Predilecta, La Predilecta II, La Crus, and La Cascada (the “Property”) which is comprised of a total of approximately Three Thousand One Hundred Eighty One Hectares (3,181 ha) and is located in Miahuatlan District, in the Southern portion of Valles Centrales Region within Oaxaca State, Mexico. In exchange, the Company is required to: (i) pay two cash payments of Fifty Thousand dollars ($50,000) to Highlander for a total of One Hundred Thousand dollars ($100,000), the first payment of $50,000 is to be paid within 60 days after both parties have executed the MPAA, and the second payment is to be paid 90 days after both parties have executed the MPAA, and (ii) issue an aggregate of four million (4,000,000) restricted shares of the Company’s preferred common stock to Highlander, per the terms and conditions of the MPAA.
The Hayter Well
Purchase of Interest in the Hayter Well
On August 1, 2006, County Line Energy Corp. (“County Line”) signed a participation agreement with Black Creek Resources Ltd. (“BCR”) in which County Line acquired the right to become the operator and drill the Hayter well (10D Hayter 10-8-40-1 W4M) located in Alberta, Canada. In order to exercise that interest and acquire the rights to drill the Hayter well, County Line agreed to pay 100% of all costs associated with the seismic option agreement and pay 100% of the funds required to purchase rights to any existing seismic on the property which may be for sale and or shoot additional 2D and 3D on the property as required, pursuant to standard industry costs and practices.
Pursuant to a Participation Agreement dated December 21, 2006 between Black Creek Resources Ltd (“BCR”) and Nuance Exploration Ltd. (“NEL”), a wholly owned subsidiary of the Company, we acquired a 100% ownership in the interpretation of 3D seismic data covering four sections of certain land located in the province of Alberta, Canada by paying $82,650 for the purpose of acquiring and interpreting the seismic data. On October 15, 2007, prior to the evaluation of the 3D seismic data, County Line sold to BCR 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, County Line did not repay the amounts owing pursuant to the promissory note and NEL and County Line 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. Pursuant to the terms of the Participation agreement NEL agreed to assume 20% of all revenues, costs and expenses associated with the project.
During our first fiscal quarter of 2009 we advanced $23,938 (CDN$29,000) to County Line Energy Corp for costs and expenses associated with the Hayter Well as an unsecured loan. On October 16, 2009 we entered into an amendment to our participation agreement with County Line pursuant to which we acquired an additional 30% working interest in the Hayter Well in consideration of a release by Force from all amounts owed by County Line to Force. Following our entry
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into the amended participation agreement we now hold a 50% working interest in the County Line Energy Corp. interest in the Hayter Well.
We have not incurred any development costs on the Hayter Well for the year ended November 30, 2013.
Location of Hayter Well
Force Energy Corp. has a 50% working interest of the County Line Energy Corp. interest in the Hayter Well (10D Hayter 10-8-40-1 W4M) located in Alberta, Canada. The well was spudded in January 2007 and drilled to a total depth. The well logs revealed a gas zone of 4 to 5 meters of thickness in a shallow zone and a heavy oil pay zone of 2 meters of thickness in the target Dina Sand zone.
County Line completed a $650,000 3D seismic program covering nine sections of land in pursuit of a potential multi well heavy oil drilling opportunity. The geological model was based on interpretation from a previous well, which produced 16,000 barrels of heavy oil. The seismic program was designed to determine whether the structure found in this well existed to a larger extent on the subject property. The 3D seismic revealed an extremely large anomaly with similar characteristics. The nature of this large anomaly suggested that a multi well drilling opportunity might exist.
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 zone(s) and conduct regular production testing of the zone(s). 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.
Oil and Gas Properties and Wells
On March 9, 2009, Force received a report on reserves data for the Hayter Well prepared by its independent engineers, Chapman Petroleum Engineering Ltd.
The following table sets forth the number of wells in which the Company held a working interest as at November 30, 2009:
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The Company has not since the beginning of its most recently completed fiscal year, filed any annual estimates of proved oil and gas reserves with any federal agencies. As at November 30, 2012, the 50% working interest of the Hayter Well was recorded at $135,427.
Competition
The mineral exploration and oil and gas industries, in general, are intensely competitive and even if commercial quantities of reserves are discovered, a ready market may not exist for the sale of the reserves.
Most companies operating in this industry are more established and have greater resources to engage in the production of mineral or oil and gas claims (the “claims”). Our resources at the present time are limited. We may exhaust all of our resources and be unable to complete full exploration of our claims. There is also significant competition to retain qualified personnel to assist in conducting mineral exploration activities. If a commercially viable deposit is found to exist and we are unable to retain additional qualified personnel, we may be unable to enter into production and achieve profitable operations. These factors set forth above could inhibit our ability to compete with other companies in the industry and enter into production of the claims if a commercial viable deposit is found to exist.
Numerous factors beyond our control may affect the marketability of any substances discovered. These factors include market fluctuations, the proximity and capacity of natural resource markets and processing equipment, government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in not receiving an adequate return on invested capital.
Compliance with Government Regulation
We are required to obtain licenses and permits from various governmental authorities. These permits or licenses may include water and surface use permits, occupation permits, fire permits, timber permits,drilling and abandonment bonds, reports concerning operations, the spacing of wells, and pooling of properties and taxation. Prior to being issued the various permits or licenses, the applicant must file a detailed work plan with the applicable government agency. Permits are issued on the basis of the work plan submitted and approved by the governing agency. Additional work on a given mineral property or a significant change in the nature of the work to be completed would require an amendment to the original permit or license.
As part of the permit or licensing requirements, the applicant may be required to post an environmental reclamation bond in respect to the work to be carried out on the mineral property. The amount of such bond is determined by the amount and nature of the work proposed by the applicant. The amount of a bond may also be increased with increased levels of development on the property.
We anticipate that we will be able to obtain all necessary licenses and permits to carry on the activities which we intend to conduct, and that we intend to comply in all material respects with the terms of such licenses and permits.As we have not proceeded to the development of our properties, we have not incurred any expenditures related to complying with such laws, or for remediation of existing environmental contamination. The requirements imposed by such laws and regulations are frequently changed and subject to interpretation, and we are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations.
Subsidiaries
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We have two wholly owned subsidiaries, FRC Exploration Ltd. (a British Columbia Corporation) and Nuance Exploration Ltd. (a British Columbia Corporation).
Employees
Currently our only employee is Tim DeHerrera. We do not expect any material changes in the number of employees over the next twelve month period. We anticipate that we will be conducting most of our business through agreements with consultants and third parties.We plan to outsource independent consultant engineers and geologists on a part time basis to conduct specific corporate business and exploration programs on our properties in order to carry out our plan of operationsfor the foreseeable future. Consultants will be retained on the basis of ability and experience.
WHERE YOU CAN GET ADDITIONAL INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy our reports or other filings made with the SEC at the SEC’s Public Reference Room, located at 100 F Street, N.E., Washington, DC 20549. You can obtain information on the operations of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can also access these reports and other filings electronically on the SEC’s web site,www.sec.gov.
ITEM 1A. RISK FACTORS
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
An investment in the Company's common stock involves a high degree of risk. One should carefully consider the following risk factors in evaluating an investment in the Company's common stock. If any of the following risks actually occurs, the Company's business, financial condition, results of operations or cash flow could be materially and adversely affected. In such case, the trading price of the Company's common stock could decline, and one could lose all or part of one's investment. One should also refer to the other information set forth in this report, including the Company's consolidated financial statements and the related notes.
Our common stock is considered a "penny stock". The application of the "penny stock" rules to our common stock could limit the trading and liquidity of the Common stock, adversely affect the market price of our common stock and increase the transaction costs to sell those shares.
Our common stock is a "low-priced" security or "penny stock" under rules promulgated under the Securities Exchange Act of 1934, as amended. In accordance with these rules, broker-dealers participating in transactions in low-priced securities must first deliver a risk disclosure document, which describes the risks associated with such stocks, the broker-dealer's duties in selling the stock, the customer's rights and remedies and certain market and other information. Furthermore, the broker-dealer must make a suitability determination approving the customer for low-priced stock transactions based on the customer's financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent from the customer, and provide monthly account statements to the customer. The effect of these restrictions will likely decrease the willingness of broker-dealers to make a market in our common stock, will decrease liquidity of our common stock and will increase transaction costs for sales and purchases of our common stock as compared to other securities.
The company continues to use significant amounts of cash for its business operations, which could result in us having insufficient cash to fund the company's operations and expenses under our current business plan.
The Company's liquidity and capital resources remain limited. There can be no assurance that the Company's liquidity or capital resource position would allow us to continue to pursue our current business strategy. Any fluctuations or downturn in the securities market could adversely affect the value of our outstanding securities. As a result, without achieving growth in our business along the lines we have projected, we would have to alter our business plan or further augment our cash flow position through cost reduction measures, sales of assets, additional
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financings or a combination of these actions. One or more of these actions would likely substantially diminish the value of its common stock.
Because of the unique difficulties and uncertainties inherent in the mineral exploration business, we face a high risk of business failure.
Potential investors should be aware of the difficulties normally encountered by new mineral exploration companies and the high rate of failure of such enterprises. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the exploration of mineral properties. These potential problems include, but are not limited to, unanticipated problems relating to exploration, and additional costs and expenses that may exceed current estimates. The search for valuable minerals also involves numerous hazards. As a result, we may become subject to liability for such hazards, including pollution, cave-ins and other hazards against which we cannot insure or against which we may elect not to insure. At the present time, we have no coverage to insure against these hazards. The payment of such liabilities may have a material adverse effect on our financial position. In addition, there is no assurance that the expenditures to be made by us in the exploration of the mineral claims will result in the discovery of mineral deposits. Problems such as unusual or unexpected formations and other conditions are involved in mineral exploration and often result in unsuccessful exploration efforts.
If we are unable to successfully compete within the mineral exploration business, we will not be able to achieve profitable operations.
The mineral exploration business is highly competitive. This industry has a multitude of competitors and no small number of competitors dominates this industry with respect to any of the large volume metallic minerals. Our exploration activities will be focused on attempting to located commercially viable mineral deposits on our claims. Many of our competitors have greater financial resources than us. As a result, we may experience difficulty competing with other businesses when conducting mineral exploration activities on our claims. If we are unable to retain qualified personnel to assist us in conducting mineral exploration activities on our claims; if a commercially viable deposit is found to exist, we may be unable to enter into production and achieve profitable operations.
There is substantial uncertainty about the ability of Force Minerals Corp. to continue its operations as a going concern.
In their audit report, our auditors have expressed an opinion that substantial doubt exists as to whether we can continue as an ongoing business. Because our officers may be unwilling or unable to loan or advance any additional capital to Force Minerals Corp., we believe that if we do not raise additional capital within 12 months, we may be required to suspend or cease the implementation of our business plans. As such we may have to cease operations and you could lose your entire investment.
Because the Company has been issued an opinion by its auditors that substantial doubt exists as to whether it can continue as a going concern it may be more difficult to attract investors.
Risks Related To Our Financial Condition
Because we anticipate our operating expenses will increase prior to our earning revenues, we may never achieve profitability.
Prior to completion of our exploration stage, we anticipate that we will incur increased operating expenses without realizing any revenues. We expect to incur continuing and significant losses into the foreseeable future. As a result of continuing losses, we may exhaust all of our resources and be unable to complete the exploration of our properties. Our accumulated deficit will continue to increase as we continue to incur losses. We may not be able to earn profits or continue operations if we are unable to generate significant revenues from the exploration of our mineral claims. There is no history upon which to base any assumption as to the likelihood that we will be successful, and we may not be able to generate any operating revenues or ever achieve profitable operations. If we are unsuccessful in addressing these risks, our business will most likely fail.
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If we do not obtain adequate financing, our business will fail, resulting in the complete loss of your investment.
If we are not successful in earning revenues once we have started our planned sales activities, we may require additional financing to sustain business operations. Currently, we do not have any arrangements for financing and we may be unable to obtain financing when required. Obtaining additional financing would be subject to a number of factors, including the Company’s ability to attract customers. The Company may be unable to access to capital markets in the future or that financing, adequate to satisfy the cash requirements of implementing our business strategies, will be available on acceptable terms. The inability of the Company to gain access to capital markets or obtain acceptable financing could have a material adverse effect upon the results of its operations and upon its financial conditions.
The company’s management could issue additional shares, since the company has 5,000,000,000 authorized common shares, diluting the current shareholders’ equity.
The Company has 5,000,000,000 common shares, of which 4,393,194are currently issued and outstanding. The Company’s management could, without the consent of the existing shareholders, issue substantially more shares, causing a large dilution in the equity position of the Company’s current shareholders. Additionally, large share issuances would generally have a negative impact on the Company’s share price. It is possible that, due to additional share issuance, you could lose a substantial amount, or all, of your investment.
Our board of directors has the authority, without stockholder approval, to issue preferred stock with terms that may not be beneficial to common stockholders and may grant voting powers, rights and preference that differ from or may be superior to those of the registered shares.
Our articles of incorporation allow us to issue 10,000,000 shares of preferred stock without any vote or further action by our stockholders. Our board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our board of directors also has the authority to issue preferred stock without further stockholder approval, including large blocks of preferred stock. Furthermore, TimDeHerrera serves as our sole director and, therefore, has the ability to issue preferred stock without shareholder approval. As a result, our sole director could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock.
Future sales of our common stock could put downward selling pressure on our common stock, and adversely affect the per share price. There is a risk that this downward pressure may make it impossible for an investor to sell share of common stock at any reasonable price, if at all.
Future sales of substantial amounts of our common stock in the public market or the perception that such sales could occur, could put downward selling pressure on our common stock and adversely affect its market price.
We do not anticipate paying dividends in the foreseeable future.
We do not anticipate paying dividends on our common stock in the foreseeable future, but plan rather to retain earnings, if any, for the operation, growth and expansion of our business. Because the Company does not anticipate paying cash dividends in the foreseeable future which may lower expected returns for investors, and as such our stockholders will not be able to receive a return on their investment unless they sell their shares of common stock.
Because we expect to incur losses in the future, failure to generate revenues will cause us to go out of business and your entire investment could be lost.
Based upon current plans, we expect to incur operating losses in future periods because we will be incurring expenses and not generating revenues. We cannot guarantee that we will be successful in generating revenues in the future. Failure to generate revenues will cause us to go out of business.
Our operating results may prove unpredictable, which could result in the complete loss of your investment.
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Our operating results are likely to fluctuate significantly in the future due to a variety of factors, many of which we have no control. Factors that may cause our operating results to fluctuate significantly include: our ability to generate enough working capital from future equity sales; the level of commercial acceptance by the public of our services; fluctuations in the demand for secure online storage; the amount and timing of operating costs and capital expenditures relating to expansion of our business, operations, infrastructure and general economic conditions.
If realized, any of these factors could have a material adverse effect on our business, financial condition and operating results, which could result in the complete loss of your investment.
As the company’s sole officer and director has other outside business activities, he may not be in a position to devote a majority of his time to the company, which may result in periodic interruptions or business failure.
Mr. DeHerrera our sole officer and director, has other business interests and currently devote approximately 20 hours per week to our operations. If the demands of the Company’s business requires more business time of our sole officer and director, he is prepared to adjust his timetable to devote more time to the Company’s business. However, he may not be able to devote sufficient time to the management of the Company’s business, which may result in periodic interruptions in implementing the Company’s plans in a timely manner. Such delays could have a significant negative effect on the success of the business.
Key management personnel may leave the company, which could adversely affect the ability of the company to continue operations.
The Company is entirely dependent on the efforts of its sole officer and director. The Company does have an employment agreement in place with its sole officer and directors. Their departure or the loss of any other key personnel in the future could have a material adverse effect on the business. The Company believes that all commercially reasonable efforts have been made to minimize the risks attendant with the departure by key personnel from service. However, there is no guarantee that replacement personnel, if any, will help the Company to operate profitably. The Company does not maintain key person life insurance on its sole officer and directors.
In the case if the company is dissolved, it is unlikely that there will be sufficient assets remaining to distribute to the shareholders.
In the event of the dissolution of the Company, the proceeds realized from the liquidation of its assets, if any, will be distributed to the shareholders only after the claims of the Company’s creditors are satisfied.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our principal executive offices are located at 6302 Mesedge Drive, Colorado Springs, Denver, CO 80919.A description of our oil and gas properties is set forth above in this Annual Report under the heading “Business.” As of the date of this filing, the Company has not sought to move our office. Additional space may be required as the Company expands its operations. Management does not foresee any significant difficulties in obtaining any required additional space. The Company currently does not own any real property.
ITEM 3. LEGAL PROCEEDINGS
We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which our director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
ITEM 4. MINE SAFETY DISCLOSURE
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None.
PART II
ITEM 5. MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock
Our common stock is currently quoted on the OTC Markets. Our common stock has been quoted on the OTC Markets since October 3, 2007 trading under the symbol “NUNC”. On February 25, 2008, our symbol was changed to “FORC” to reflect our Company’s name change Because we are quoted on the OTC Markets, our securities may be less liquid, receive less coverage by security analysts and news media, and generate lower prices than might otherwise be obtained if they were listed on a national securities exchange.
The following table sets forth the high and low bid prices for our Common Stock per quarter as reported by the OTCQB for the period from December 1, 2012, through November 30, 2013,based on our fiscal year end November 30. These prices represent quotations between dealers without adjustment for retail mark-up, markdown or commission and may not represent actual transactions.
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2013 – High | |
| | | | 1.60 | | | | .35 | | | .12 |
2013 – Low | |
| | | | 0.21 | | | | .059 | | | 0.025 |
2012 – High |
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Record Holders
As of February 21, 2014, there were 4,393,194shares of the registrant’s $0.001 par value common stock issued and outstanding and were owned by approximately 31 holders of record, based on information provided by our transfer agent.
Penny Stock Regulation
Shares of our common stock will probably be subject to rules adopted the SEC that regulate broker-dealer practices in connection with transactions in “penny stocks”. Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in those securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, deliver a standardized risk disclosure document prepared by the SEC, which contains the following:
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- a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; |
- a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to violation to such duties or other requirements of securities’ laws; |
- a brief, clear, narrative description of a dealer market, including "bid" and "ask” prices for penny stocks and the significance of the spread between the "bid" and "ask" price; |
- a toll-free telephone number for inquiries on disciplinary actions; |
- definitions of significant terms in the disclosure document or in the conduct of trading in penny stocks; and |
- such other information and is in such form (including language, type, size and format), as the SEC shall require by rule or regulation. |
Prior to effecting any transaction in penny stock, the broker-dealer also must provide the customer the following:
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- the bid and offer quotations for the penny stock; |
- the compensation of the broker-dealer and its salesperson in the transaction; |
- the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and |
- monthly account statements showing the market value of each penny stock held in the customer's account. |
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for a stock that becomes subject to the penny stock rules. Holders of shares of our common stock may have difficulty selling those shares because our common stock will probably be subject to the penny stock rules.
Description of Registrant’s Securities
We have authorized capital stock consisting of 750,000,000 shares of common stock, $0.001 par value per share (“Common Stock”) and 10,000,000 shares of preferred stock, $0.001 par value per share (“Preferred Stock”).
Preferred Stock
On October 28, 2013, the Board of Directors of the Company with the approval of a majority vote of its shareholders, designated four million (4,000,000) shares of the ten million (10,000,000) authorized preferred stock of our company as “Series A Preferred Stock” by filing a Certificate of Designation with the Secretary of State of the State of Nevada. The Series A Preferred Stock has 100 votes per share and is convertible into shares of our common stock. The Holders of the Series A Preferred Stock, may not convert and hold more than 9.9% of the common stock outstanding at any one time.
Equity Compensation Plans
We do not have any equity compensation plans in place, whether approved by the shareholders or not.
Warrants, Options and Convertible Securities
We do not have any outstanding warrants, options or convertible securities.
Recent Sales of Unregistered Securities
Between December 12, 2012 and February 28, 2013, we issued an aggregate of 17,884,615 common shares with an aggregate fair value of $76,202, upon the conversion $38,000 of a convertible note which was due upon demand.
On January 12, 2013, we issued 5,000,000 common shares with an aggregate fair value of $24,200, upon the conversion $12,000 of a convertible note which falls due on March 14, 2013.
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Between December 12, 2012 and May 31, 2013, we issued an aggregate of 245,868 common shares with an aggregate fair value of $100,200, upon the conversion of $50,000 of a convertible note which was due upon demand.
Between January 12, 2013, and May 31, 2013, we issued 192,576 common shares with an aggregate fair value of $86,500, upon the conversion of accrued interest of $1,700 and $42,500 principal of a convertible note which falls due on March 14, 2013.
Between May 2, 2013 and May 31, 2013, we issued 189,679 common shares with an aggregate fair value of $51,300, upon the conversion of $25,900 of a convertible note which fell due on May 21, 2013.
We issued 500,000 shares to our officer and director, Tim DeHerrera, to settle amounts owing under a prior contract of $22,125 and 278,750 shares are to be earned over the period of his employment agreement.
On June 26, 2013, we issued 4,000,000 shares of preferred stock to Highlander Overseas, Inc. in connection with a Mineral Property Acquisition Agreement.
From August 31, 2013 until November 30, 2013, we issued 586,139 common shares with an aggregate fair value of $16,826 upon the conversion of $10,900 of a convertible note which fell due on June 14, 2013.
Subsequent Issuances
From December 1, 2013 to February 14, 2014, the holders of a convertible notes converted a total of $21,023 of principal into 1,388,584shares of our common stock.
Other than as previously disclosed, none.
Re-Purchase of Equity Securities
None.
Dividends
We have not paid any cash dividends on our common stock since inception and presently anticipate that all earnings, if any, will be retained for development of our business and that no dividends on our common stock will be declared in the foreseeable future. Any future dividends will be subject to the discretion of our Board of Directors and will depend upon, among other things, future earnings, operating and financial condition, capital requirements, general business conditions and other pertinent facts. Therefore, there can be no assurance that any dividends on our common stock will be paid in the future.
Securities Authorized for Issuance Under Equity Compensation Plans
None.
ITEM 6. SELECTED FINANCIAL DATA
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections. We may use words such as “anticipate,” “expect,”
14
“intend,” “plan,” “believe,” “foresee,” “estimate” and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted. You should read this report completely and with the understanding that actual future results may be materially different from what we expect. The forward-looking statements included in this report are made as of the date of this report and should be evaluated with consideration of any changes occurring after the date of this Report. We will not update forward-looking statements even though our situation may change in the future and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
Working Capital
| | |
|
|
|
| November 30, 2013 $ | November 30, 2012 $ |
Current Assets | - | 25,465 |
Current Liabilities | 523,739 | 530,216 |
Working Capital (Deficit) | (523,739) | (504,751) |
Cash Flows
| | |
|
|
|
| November 30, 2013 $ | For the Period from November 1, 2006 (date of inception) to November 30, 2013 $ |
Cash Flows from (used in) Operating Activities | (279,920) | (1,820,610) |
Cash Flows from (used in) Investing Activities | (1,160,000) | (1,162,268) |
Cash Flows from (used in) Financing Activities | 1,404,991 | 3,476,336 |
Net Increase (decrease) in Cash During Period | (35,442) | 0 |
Results for the Year Ended November 30, 2013Compared to the Year Ended November 30, 2012
Revenues:
The Company’s revenues were $nil for the year ended November 30, 2013compared to $nil in 2012.
Cost of Revenues:
The Company’s cost of revenue was $nil for the year ended November 30, 2013, compared to $nil in 2012.
General and Administrative Expenses:
General and administrative expenses for the year ended November 30, 2013, and November 30, 2012, were $527,555 and $660,180, respectively. General and administrative expenses consisted primarily of consulting fees, management fees, office expensesand preparing reports and SEC filings relating to being a public company. The increase was primarily attributable to an increase in management fees for normal operations.
Other Income (Expense):
Other income (expense) consisted of gain on derivative valuation and interest expense. The gain on derivative valuation is directly attributable to the change in fair value of the derivative liability from date of issuance during 2012 through November 30, 2013. Interest expense is primarily attributable to the initial interest expense associated with the valuation of derivative instruments at issuance and the accretion of the convertible debentures
15
over their respective terms. Interest associated with the derivative instruments for the year ended November 30, 2013 amounted to approximately $(306,706), compared to $(341,484) in 2012. The change in value on derivative valuation expense for the year ended November 30, 2013 was $(107,920), compared to $(40,600) in 2012.
Net Loss:
Net loss for the year ended November 30, 2013, was $(898,106) compared with a net loss of $(1,072,264) for the year ended November 30, 2012. The decreased net loss is due to a decrease in consulting fees, general and administrative expenses and convertible note expenses.
Results for the Period from November 1, 2006 (Inception of Exploration Stage) through November 30, 2013
Revenues:
The Company’s revenues were $nil for the year ended November 30, 2013, compare to $nil for the period from inception to November 30, 2013.
Cost of Revenues
The Company’s cost of revenue was $nil for the year ended November 30, 2013, compared to $nil for the period from inception to November 30, 2013.
General and Administrative Expenses:
General and administrative expenses consisted primarily of consulting fees, rent, travel, meals and entertainment, and preparing reports and SEC filings relating to being a public company. For the year ended November 30, 2013, general and administrative expenses was $527,555 compared to $4,002,564 for the period from inception to November 30, 2013.
Other Income (Expense):
Other income (expense) for the period November 1, 2006 (Inception of Exploration Stage) through November 30, 2013was $(849,094). Other income (expense) consisted of gain on derivative valuation and interest expense. The gain on derivative valuation is directly attributable to the change in fair value of the derivative liability from date of issuance during 2012 through November 30, 2013. Interest expense is primarily attributable to the initial interest expense associated with the valuation of derivative instruments at issuance and the accretion of the convertible debentures over their respective terms. Interest associated with the derivative instruments amounted to approximately $(728,879).
Net Loss.
Net loss for the period November 1, 2006 (Inception of Exploration Stage) through November 30, 2013,was $(4,809,844). The net loss for this period was primarily related to general and administrative expenses exceeding the amount of revenues for the period indicated.
Impact of Inflation
We believe that the rate of inflation has had a negligible effect on our operations.
Liquidity and Capital Resources
16
The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. Since its inception, the Company has been funded by related parties through capital investment and borrowing funds.
As of November 30, 2013, total current assets were $nil, which consisted primarily of cash, inventory and deposits.
As of November 30, 2013, total current liabilities were $523,739, which consisted primarily of accounts payable and accrued expenses and convertible debentures. We had negative net working capital of $(523,739) as of November 30, 2013.
During the period from November 1, 2006 (Inception of Exploration Stage) through November 30, 2013, operating activities used cash of $(1,820,610). The cash used by operating activities related to general and administrative expenses, the purchase of inventory for resale and non-cash items related to derivative instruments. Except for cash in the amount of $nil from sales of our products, all of the cash during this period was provided by related party transactions, capital contributions and convertible debentures.
Intangible Assets
The Company’s intangible assets were $nil as of November 30, 2013.
Material Commitments
The Company’s material commitments were $nil as of November 30, 2013.
Going Concern
We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions and activities. For these reasons, our auditors stated in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern without further financing.
Future Financings
We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and exploration activities.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management's
17
estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Recently Issued Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Contractual Obligations
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
0
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
FORCE MINERALS CORP. (F/K/A Force Energy Corporation) |
( AN EXPLORATION STAGE COMPANY ) |
|
Index to Consolidated Financial Statements |
|
|
|
|
| | | |
Table of Contents |
| Page |
|
|
| |
Report of Independent Registered Public Accounting Firm | | F-2 | |
Consolidated Balance Sheets as of November 30, 2013and 2012 | | F-3 | |
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended November 30, 2013and 2012 | | F-4 | |
Consolidated Statement of Changes in Stockholders' Equity for the Years Ended November 30, 2013and 2012 | | F-6 | |
Consolidated Statements of Cash Flows for the Years Ended November 30, 2013and 2012 | | F-8 | |
Notes to Consolidated Financial Statements | | F-10 | |
F- 1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
March 17, 2014
To the Board of Directors:
We have audited the accompanying consolidated balance sheet of Force Minerals Corp-An exploration stage Company (the “Company”) as of November 30, 2013 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of Force Minerals Corporation as of November 30, 2012 were audited by other auditors whose report dated February 28, 2013 included an explanatory paragraph as to the Company’s ability to continue as a going concern.
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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 November 30, 2013 and 2012-audited by the predecessor independent registered accounting firm, and the results of its operations and changes in stockholders’ deficit and its cash flows for the years ended November 30, 2013 and 2012, in conformity with accounting principles generally accepted in the United States of America.
/s/W. T. Uniack & Co. CPA’s P.C.
Woodstock, Georgia
| | | | | | | | | | | |
RCE MINERALS CORPORATION | |
(formerly Force Energy Corp) | |
(An Exploration Stage Company) | |
Condensed Consolidated Balance Sheets | |
|
|
|
|
|
|
| |
|
|
|
| November 30, |
| November 30, | |
|
|
|
| 2013 |
| 2012 | |
ASSETS | (Unaudited) |
| (Audited) |
| Current assets | | | | |
|
| Cash |
| $ - |
| $ 35,442 | |
| Total Current Assets | | - | | 35,442 |
| Mineral property option | 1,500,099 |
| 340,099 |
| Total Assets | | $ 1,500,099 | | $ 375,541 |
|
|
|
|
|
|
| |
LIABILITIES | | | |
| Current liabilities |
|
|
|
|
| | Bank overdraft | | $ 23 | | $ - | |
|
| Accounts payable and accrued liabilities | 97,942 |
| 43,713 |
| | Advances payable | 20,000 | | 20,000 |
|
| Convertible notes payable, net of discount | 313,884 |
| 315,518 |
| | Derivative liabilities | 90,297 | | 58,200 |
|
| Due to related parties | 1,593 |
| 4,625 |
| Total Current liabilities | 523,739 | | 442,056 |
|
|
|
|
|
|
| |
| Asset retirement obligation | 18,861 | | 16,845 |
| Total Liabilities |
| $ 542,600 | | $ 458,901 |
| | | | | | | |
| STOCKHOLDERS' DEFICIT |
|
|
|
| Preferred stock, $0.001 par value; 10,000,000 shares | | | |
| authorized, 4,000,000 issued | 4,000 | | - |
| Common stock, $0.1 par value; 750,000,000 shares |
|
|
|
| authorized; 3,004,610 shares issued (November 30, 2012 - |
|
|
|
| 1,054,169 shares issued) (1) | 300,461 |
| 105,417 |
| Additional paid in capital | 5,520,454 | | 3,812,334 |
| Deferred stock compensation | (64,112) |
| (95,400) |
| Accumulated other comprehensive income | 6,540 |
| 6,027 |
| Deficit accumulated during the development stage | (4,809,844) |
| (3,911,738) |
| Total Stockholders' Deficit | 957,499 | | (83,360) |
| Total Liabilities and Stockholders' Deficit | $ 1,500,099 |
| $ 375,541 |
(1) All common share amounts and per share amounts in these financial statements, reflect the one hundred-for-one reverse stock splits of the issued and outstanding shares of the common stock of the Company, effective June 14, 2013 respectively, including retroactive adjustment of common share amounts. See Note 11.
See accompanying notes to the Condensed Consolidated Financial Statements
| | | | | | | | | |
FORCE MINERAL CORPORATION |
(formerly Force Energy Corp) |
(An Exploration Stage Company) |
Condensed Consolidated Statements of Operations and Comprehensive Loss |
|
|
|
|
|
|
|
| |
|
|
|
| November 1, 2006 |
|
| Years ended |
| (Date of Inception) |
|
| November 30, |
| to November 30, |
|
| 2013 |
| 2012 |
| 2013 | |
Expenses |
|
|
|
|
| |
| Accounting and audit fees | $ 39,928 | | $ 22,825 | | $ 349,874 | |
| Accretion of ARO | 2,529 |
| 2,238 |
| 9,686 | |
| Advertising and promotion | 78,000 | | - | | 78,000 | |
| Bank charges | 223 |
| 1,176 |
| 5,666 | |
| Consulting fees | 19,900 | | 213,439 | | 641,839 | |
| Depreciation | - |
| - |
| 4,651 | |
| Investor relations | - | | - | | 61,443 | |
| Legal fees | 13,288 |
| 28,514 |
| 234,607 | |
| Management fees | 314,162 | | 234,825 | | 1,696,762 | |
| Mineral property exploration costs | 50,000 |
| 8,639 |
| 114,250 | |
| Office expenses | 247 | | 4,771 | | 44,441 | |
| Oil and gas exploration costs | - |
| - |
| 15,000 | |
| Rent | 2,116 | | 3,113 | | 48,930 | |
| Tax penalties and interest | - |
| 421 |
| 42,910 | |
| Transfer and filing fees | 7,162 |
| 2,657 | | 88,564 | |
| Travel | - |
| 2,135 |
| 12,476 | |
| Write-off of oil and gas costs | - | | 135,427 | | 553,466 | |
| Total expenses | 527,555 |
| 660,180 |
| 4,002,564 | |
| | | | | | | |
Net Loss from Operations | $ (527,555) |
| $ (660,180) |
| $ (4,002,564) | |
| | | | | | | |
Other Income and Expenses |
|
|
|
|
| |
| Debt forgiveness | - | | - | | 15,286 | |
| Loss on settlement of advance payable | - |
| (30,000) |
| (30,000) | |
| Change in fair value of derivative liability | (107,920) | | (40,600) | | (107,920) | |
| Interest expense | (306,706) |
| (341,484) |
| (728,879) | |
| Interest income | 2,261 | | - | | 2,419 | |
Net loss before income taxes | (939,920) | | (1,072,264) | | (4,851,658) | |
| | | | | | | |
| Benefit (loss) from income tax | 41,814 | | - | | 41,814 | |
| | | | | | | |
Net loss | $ (898,106) | | $ (1,072,264) | | $ (4,809,844) | |
| | | | | | | |
| Foreign currency translation adjustments | 513 |
| (1,364) |
| 6,540 | |
| | | | | | | |
Comprehensive loss for period | $ (897,593) | | $ (1,073,628) | | $ (4,803,304) | |
| | | | | | | |
Basic loss per share | $ (0.39) |
| $ (0.01) |
|
| |
| | | | | | | |
Weighted average number of shares |
|
|
|
|
| |
outstanding; basic and diluted (2) | 2,275,120 |
| 70,979,728 |
|
| |
|
|
(2) All common share amounts and per share amounts in these financial statements, reflect the one hundred-for-one reverse stock splits of the issued and outstanding shares of the common stock of the Company, effective June 14, 2013 respectively, including retroactive adjustment of common share amounts. See Note 11. |
See accompanying notes to the Condensed Consolidated Financial Statements
| | | | | | | | | | |
FORCE MINERALS CORPORATION |
(formerly Force Energy Corp) |
(An Exploration Stage Company) |
Condensed Consolidated Statement of Cash Flows |
(Unaudited) |
|
|
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|
|
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|
| November 1, 2006 | |
|
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|
| Years Ended |
| (Date of Inception) | |
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|
| November 30, |
| to November 30, | |
|
|
|
|
| 2013 |
| 2012 |
| 2013 | |
|
| Operating activities |
|
|
|
|
| |
| | | Net loss | (897,593) | | (1,073,628) | | (4,803,304) | |
|
|
| Adjustments to reconcile net loss to net |
|
|
|
|
| |
|
|
| cash used in operating activities: |
|
|
|
|
| |
| | |
| Non-cash interest expense | 159,956 | | 244,484 | | 485,129 | |
|
|
|
| Interest expense - beneficial conversion feature |
|
|
|
|
| |
|
|
|
| of convertible note and advance payable | 146,750 |
| 127,000 |
| 273,750 | |
| | | | Loss from change in fair value of derivative | | | | |
| |
| | | | liability | 107,920 | | 40,600 | | 107,920 | |
|
|
|
| Consulting/management fees paid in stock | 22,125 |
| 178,338 |
| 22,125 | |
| | | | Gain from settlement of related party balance | 28,764 | | - | | 612,102 | |
|
|
|
| Share based compensation | 95,400 |
| 134,200 |
| 825,000 | |
| | | | Debt forgiveness | - | | - | | (15,286) | |
|
|
|
| Accretion of ARO | 2,529 |
| 2,238 |
| 9,686 | |
| | | | Depreciation | - | | - | | 4,651 | |
|
|
|
| Impairment of oil and gas costs | - |
| 135,427 |
| 553,466 | |
| | | | Other | - | | - | | (148) | |
|
|
| Changes in assets and liabilities: |
|
|
|
|
| |
| | | | Prepaid expenses | - | | 1,119 | | - | |
|
|
|
| Advance payable | - |
| - |
| 50,000 | |
| | | | Accounts payable and accrued liabilities | 54,229 | | (5,158) | | 54,299 | |
|
| Net cash used in operating activities | (279,920) |
| (215,380) |
| (1,820,610) | |
| | | | | | | | | | |
|
| Investing activities |
|
|
|
|
| |
| | | Acquisition of property and equipment | - | | - | | (4,651) | |
|
|
| Acquisition of mineral property option | (1,160,000) |
| (50,499) |
| (1,270,099) | |
| | | Acquisition and development costs of | | | | |
| |
| | | oil and gas properties | - | | - | | (387,517) | |
|
| Net cash flows used in investing activities | (1,160,000) |
| (50,499) |
| (1,662,267) | |
| | | | | | | | | | |
|
| Financing activities |
|
|
|
|
| |
| | | Bank overdraft | 23 | | - | | 23 | |
|
|
| Capital stock issued | - |
| - |
| 1,419,000 | |
| | | Preferred stock issued | 1,160,000 | | - | | 1,160,000 | |
|
|
| Proceeds from convertible note payable | 248,000 |
| 337,500 |
| 755,500 | |
| | | Due to related parties | (3,032) | | 4,000 | | 162,410 | |
|
|
| Repayment convertible note payable | - |
| (57,655) |
| (57,655) | |
| | | Proceeds from reverse acquisition | - | | - | | 37,058 | |
|
| Net cash provided by (used in) financing activities | 1,404,991 |
| 283,845 |
| 3,476,336 | |
| | | | | | | | | | |
|
| Effect of foreign exchange on cash | (513) |
| 1,083 |
| 6,540 | |
| | | | | | | | | | |
|
| Change in cash | (35,442) |
| 19,049 |
| (0) | |
| | Cash at beginning of period | 35,442 | | 16,393 | | - | |
|
| Cash at end of period | $ 0 |
| $ 35,442 |
| (0) | |
See accompanying notes to the Condensed Consolidated Financial Statements
F- 10
Note 1Interim Reporting
The unaudited condensed consolidated 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 condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s audited consolidated financial statements for the fiscal year ended November 30, 2012. The Company assumes that the users of the interim consolidated 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, 2012, has been omitted. The results of operations for the nine-month period ended August 31, 2013 are not necessarily indicative of results for the entire year ending November 30, 2013.
Note 2Nature of Operations and 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.
Effective December 28, 2006, the Board of Directors authorized a 3 for 1 forward stock split of 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.
On June 6, 2013, the Board of Directors changed the name of the Company to Force Minerals Corporation. Also on June 6, 2013, the Board of Directors authorized a 100:1 reverse stock split of the common shares. The name change and reverse stock split received regulatory approval on June 28, 2013. The record date for the reverse stock split was June 14, 2013. The authorized number of common shares remained unchanged. All references in the accompanying financial statements to the number of common shares have been restated to reflect the reverse stock split.
These consolidated 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 consolidated 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 November 30, 2013, the Company has a working capital deficit of $523,739. The Company has yet to achieve profitable operations, has accumulated losses of $4,809,844 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- 11
Note 3Recent Developed Accounting Pronouncements
Effective January 2013, we adopted FASB ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (ASU 2011-11). The amendments in ASU 2011-11 require the disclosure of information on offsetting and related arrangements for financial and derivative instruments to enable users of its financial statements to understand the effect of those arrangements on its financial position. Amendments under ASU 2011-11 will be applied retrospectively for fiscal years, and interim periods within those years, beginning after January 1, 2013. The adoption of this update did not have a material impact on the consolidated financial statements.
Effective January 2013, we adopted FASB ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive (ASU 2013-02). This guidance is the culmination of the FASB’s deliberation on reporting reclassification adjustments from accumulated other comprehensive income (AOCI). The amendments in ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income. However, the amendments require disclosure of amounts reclassified out of AOCI in its entirety, by component, on the face of the statement of operations or in the notes thereto. Amounts that are not required to be reclassified in their entirety to net income must be cross-referenced to other disclosures that provide additional detail. This standard is effective prospectively for annual and interim reporting periods beginning after December 15, 2012. The adoption of this update did not have a material impact on the consolidated financial statements.
New Accounting Pronouncements Not Yet Adopted
In February 2013, the FASB issued ASU No. 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date. The amendments in ASU 2013-04 provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this Update is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance in this Update also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. The amendments in this standard is effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. We are evaluating the effect, if any, adoption of ASU No. 2013-04 will have on our consolidated financial statements.
In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. The amendments in ASU No. 2013-05 resolve the diversity in practice about whether Subtopic 810-10, Consolidation—Overall, or Subtopic 830-30, Foreign Currency Matters—Translation of Financial Statements, applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment ina foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) withina foreign entity. In addition, the amendments in this Update resolve the diversity in practice for the treatment of business combinations achieved in stages (sometimes also referred to as step acquisitions) involving a foreign entity. The amendments in this standard is effective prospectively for fiscal years, and interim reporting periods within those years, beginning December 15, 2013. We are evaluating the effect, if any, adoption of ASU No. 2013-05 will have on our consolidated financial statements.
Note 4Financial Instruments and Risk Management
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.
F- 12
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.
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.
Financial assets and liabilities measured at fair value on a recurring basis:
| | | | | | | | | |
| FAIR VALUE |
| NOVEMBER 30, 2013 |
| NOVEMBER 30, 2012 |
| INPUT |
| CARRYING ESTIMATED |
| CARRYING ESTIMATED |
| | | | | | | | | |
| LEVEL |
| AMOUNT |
| FAIR VALUE |
| AMOUNT |
| FAIR VALUE |
Derivative Liability | 3 | | 90,297 | | 90,297 | | 58,200 | | 58,200 |
Total Financial Liabilities | |
| $ 90,297 |
| $ 90,297 |
| $ 58,200 |
| $ 58,200 |
In management’s opinion, the fair value of convertible notes payable and advances 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 4Financial Instruments and Risk Management
The carrying value of cash balances, accounts payable and accrued liabilities and due to related party approximates the fair value due to their short-term maturities.
Risk management is carried out by the Board of Directors. The Company's risk exposures and their impact on the Company's financial instruments are summarized below:
Credit risk is the risk of a financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations.
The Company’s cash and cash equivalents and are primarily held in large financial institutions.. Management believes that the credit risk with respect to cash and cash equivalents, is remote.
The Company tries to ensure that there is sufficient capital in order to meet short-term business requirements, after taking into account the Company’s holdings of cash. As at November 30, 2013, the Company had cash totaling $nil
F- 13
(November 30, 2012 - $35,442) to settle current liabilities of $523,739 (November 30, 2012 - $442,056). The Company believes it will be able to raise financing in order to settle its current liabilities as they fall due.
Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates, and commodity and equity prices.
The Company has cash balances and no interest-bearing debt. The Company’s current policy is to invest excess cash in investment-grade short-term deposit certificates issued by its banking institutions. The Company periodically monitors the investments it makes and is satisfied with the credit ratings of its banks.
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”).
During the year ended November 30, 2013, the Company entered into a Property option agreement to acquire a mineral property in Mexico. Accordingly, future costs may be incurred in currencies other than its functional currency, which may result in increased exposure to foreign exchange risk.
The Company does not participate in any hedging activities to mitigate any gains or losses, which may arise as a result of exchange rate changes.
The Company is exposed to price risk with respect to commodity and equity prices. Equity price risk is defined as the potential adverse impact on the Company's earnings due to movements in individual equity prices or general movements in the level of the stock market. Commodity price risk is defined as the potential adverse impact on earnings and economic value due to commodity price movements and volatilities. To mitigate price risk, the Company closely monitors commodity prices of precious metals, individual equity movements, and the stock market to determine the appropriate course of action to be taken by the Company.
The Company has diligently investigated rights of ownership of all of its mineral property interests and, to the best of its knowledge, all agreements relating to such ownership rights are in good standing. However, all properties/concessions may be subject to prior claims, agreements or transfers, and rights of ownership may be affected by undetected defects.
Mineral exploration and development is highly speculative and involves inherent risks. While rewards if a feasible ore body is discovered might be substantial, few properties that are explored are ultimately developed into producing mines. There can be no assurance that the current exploration programs by the Company will result in the discovery of economically viable quantities of ore.
Environmental legislation is becoming increasingly stringent and costs and expenses of regulatory compliance are increasing. The impact of new and future environmental legislation of the Company’s operation may cause additional expenses and restrictions.
If the restrictions adversely affect the scope of exploration and development on the mineral properties, the potential for production on the property may be diminished or negated.
F- 14
The Company is subject to the laws and regulations relating to environmental matters in all jurisdictions in which it operates, including provisions relating to property reclamation, discharge of hazardous materials and other matters. The Company may also be held liable should environmental problems be discovered that were caused by former owners and operators of its properties and properties in which it has previously had an interest, if any. The Company attempts to conduct its mineral exploration activities in compliance with applicable environmental protection legislation. The Company is not aware of any existing environmental problems related to any of its current or former properties, if any, interests that may result in material liability to the Company.
Certain of the Company’s property interests may from time to time be located in countries outside of Canada, and mineral exploration and mining activities may be affected in varying degrees by political stability and government regulations relating to the mining industry. Any changes in regulations or shifts in political attitudes may vary from country to country and are beyond the control of the Company and may adversely affect its business. Such changes have, in the past, included nationalization of foreign owned businesses and properties. Operations may be affected in varying degrees by government regulations with respect to restrictions on production, price controls, export controls, income and other taxes and duties, expropriation of property, environmental legislation and mine safety. These uncertainties may make it more difficult for the Company and its joint venture partners to obtain any required production financing for its mineral properties.
Note 5Mineral Properties
a) La Predilecta; La Predilecta II; La Crus and La Cascada Properties – Mexico
On May 30, 2013, the Company entered into a Property Option Agreement to acquire an option to purchase a 100% interest in four mining concessions known as La Predilecta; La Predilecta II; La Crus and La Cascada comprising approximately 1,181 hectares in the Miahuatlan District, in the southern portion of Centrales Region within Oaxaca State Mexico. The Company will hold its interest via a wholly owned Mexican subsidiary, which is yet to be incorporated when the Optionor receives the $100,000 cash.
In order to exercise the option, the Company must pay cash or issue stock to the Optionor by the following dates:
| | |
| i) | $50,000 within 60 days of signing the agreement. |
| | |
| ii) | $50,000 within 90 days of signing the agreement. |
| | |
| iii) | Issue an aggregate of 4,000,000 shares of Preferred stock. |
Each preferred share shall have an underlying voting right equivalent to 100 shares of Common stock and shall be convertible into 100 shares of Common stock.
As of this reporting period the initial $50,000 payment had been made and is being paid by an outside investor. The remaining $50,000 is past due as of August 31, 2013.
First payment of $50,000.00 has been paid. The Company is now waiting for Seller to verify the current standing with all taxes on the property. As soon as this is confirmed the Company will authorize second payment. Once the tax verification comes from the country of Mexico the Mexican subsidiary will be established and ownership of property will be held within the Mexican subsidiary.
Note 6Advance Payable
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.
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Note 7Related Party Transactions
Amounts due to related parties comprise:
| | | |
|
|
|
|
| 2013 |
| 2012 |
Amounts due to Director |
|
|
|
Tim DeHerrera | $ 250 | | $ 4,625 |
Syndication Capital | 1,343 |
| - |
| $ 1,593 | | $ 4,625 |
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 the Company President, which expires July 22, 2011. Pursuant to the contract, the President received 25,000 common shares having a fair value of $550,000. Should the contract be terminated prior to completion the President will return 1,000 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 13,000 shares issued which were earned immediately and have been expensed as stock based compensation of $286,000. The fair value of the remaining 12,000 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 during the year ended November 30, 2013, the Company recorded management fees of $nil (year ended November 30, 2012 $nil).
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 25,000 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 contract will automatically renew. Should the contract be renewed then the President will receive 25,000 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 25,000 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 during the year ended November 30, 2013 the Company recorded management fees of $nil (year ended November 30, 2012 - $79,600).
On July 16, 2012, the Company entered into an addendum to the contract, which expires July 15, 2014. Pursuant to the contract, the President received 75,000 common shares on July 2012, and will continue to receive 75,000 common shares upon each anniversary date of the addendum. The fair value of the shares received was $150,000. The President will receive $10,000 per month for months 25-36 of the contract and an annual monthly increase of $2,500 per month thereafter. Unless the contract is terminated by either party giving 45 days written notice the contact will automatically renew. 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 $0.01 per share.
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The fair value of the 75,000 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.
During the year ended November 30, 2013, the Company recorded management fees of $95,400 (year ended November 30, 2012 - $54,600) pursuant to this stock award.
On May 30, 2013, the Company entered into a second addendum to the contract, which expires May 30, 2015. Pursuant to the contract, the President received 500,000 common shares upon signing the agreement, 221,250 shares were issued to settle amounts owing under prior contract of $22,125 and 278,750 shares are to be earned over the period of the contract. As before the President will receive $10,000 per month for months 25-36 of the contract and an annual monthly increase of $2,500 per month thereafter. Unless the contract is terminated by either party giving 90 days written notice the contact will automatically renew. 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 $0.001 per share.
The fair value of the shares issued in settlement of amounts owing of $22,125 was $50,889. The difference between the recorded amount payable and the fair value of stock issued being $28,762 was charged to operations as management fees upon issuance.
The fair value of the 278,750 shares issued with a fair value of $64,113, 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. During the year ended November 30, 2013, the Company recorded management fees of $120,000 (year ended November 30, 2012 - $nil) pursuant to this stock award.
| | | |
| 2013 |
| 2012 |
Amounts charged by Director |
|
|
|
Management fees | $ 244,162 | | $ 234,825 |
Note 8Convertible Notes Payable
| | | | | | | | | | |
|
|
| November 30, |
| November 30, |
|
|
| 2013 |
| 2012 |
Promissory Note #6 | | 20,000 | | 20,000 | |
Promissory Note #7 |
| 20,000 |
| 20,000 | |
Promissory Note #8 | | 20,000 | | 20,000 | |
Promissory Note #10 |
| 30,000 |
| 30,000 | |
Promissory Note #11 | | - | | 42,500 | |
Promissory Note #12 |
| - |
| 42,500 | |
Promissory Note #13 | | 64,060 | | 75,000 | |
Promissory Note #14 |
| - |
| 50,000 | |
Promissory Note #15 | | 88,000 | | - | |
Promissory Note #16 |
| 11,000 |
| - | |
Promissory Note #17 | | 11,000 | | - | |
Promissory Note #18 |
| 50,000 |
| - | |
Promissory Note #19 | | 11,000 | | - | |
Promissory Note #20 |
| 11,000 |
| - | |
Promissory Note #21 | | 16,000 | | - | |
Promissory Note #22 |
| 50,000 |
| - | |
|
| | $ 402,060 | | $ 300,000 |
| Debt discount |
| (101,250) |
| - |
| Accrued interest | | 13,074 | | 15,518 |
|
|
| $ 313,884 |
| $ 315,518 |
As at November 30, 2013 and November 30, 2012, convertible notes payable are recorded net of unamortized debt discount of $(101,250) and $nil respectively.
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.On October 11, 2013, the Company authorized and directed to amend and restate the noteinto a new promissory note to Direct Capital Group Inc. and to provide conversion features equal to the lower of (i) $0.001 per share or (ii) 60% of the lowest closing bid price of the last day of 5 trading days prior to conversion.
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.On October 11, 2013, the Company authorized and directed to amend and restate the noteinto a new promissory note to Direct Capital Group Inc. and to provide conversion features equal to the lower of (i) $0.001 per share or (ii) 60% of the lowest closing bid price of the last day of 5 trading days prior to conversion.
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. On October 11, 2013, the Company authorized and directed to amend and restate the noteinto a new promissory note to Direct Capital Group Inc. and to provide conversion features equal to the lower of (i) $0.001 per share or (ii) 60% of the lowest closing bid price of the last day of 5 trading days prior to conversion.
Promissory Note #10
On March 20, 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. The note also contains a provision whereby should the Company perform a stock split or reverse stock split, the conversion price of the note reverts to the lesser of 40% of market value at the time of conversion, or $0.01 per share. Accordingly, subsequent to the period end on June 14, 2013, this conversion provision was triggered.
The Company determined that Promissory notes # 6, 7, 8, and 10 should be accounted for in accordance with FASB ASC 470-20, which addresses “Accounting for Convertible Securities with Beneficial Conversion Features".The intrinsic value of the conversion feature is calculated as 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 for notes # 6, 7 and 8 and $0.02 for note 10), multiplied by the number of shares into which the debt is convertible. The valuation of the beneficial conversion feature is calculated as pro rata portion of the proceeds from issuance of the convertible debt, being equal to proceeds received multiplied by intrinsic value divided by the total value received (ie. the aggregate of proceeds and intrinsic value). This beneficial conversion feature is allocated to debt discount and 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.
F- 18
During the year ended November 30, 2013 interest expense relating to the beneficial conversion feature of convertible notes of $nil (year ended November, 2012 - $97,000) was recorded in the financial statements, with a corresponding increase to additional paid in capital.
Promissory Note #11
On June 12, 2012, the Company received $42,500 cash and the Company issued a convertible promissory note in the amount of $42,500. The promissory note is unsecured, bears interest at 8% per annum, and matures on March 14, 2013. During the year ended November 30, 2013, the Company accrued $107 (year ended November 30, 2012 - $1,593) in interest expense.
After 180 days the note may be converted at the option of the holder into common stock of the Company. The conversion price is defined as “55% multiplied by market price where market price is determined as 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”. The Company determined that the embedded conversion feature would be a derivative liability based upon its variable conversion terms once the holders conversion rights were triggered.
In December 2012, upon the holders option to convert becoming active, the Company recorded debt discount and a derivative liability of $38,600 being the fair value of the conversion feature, which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term on the note or to the date of conversion. The derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period.
During the year ended November 30, 2013, the Company recorded a loss of $4,300 (year ended November 30, 2012 – $nil) due to the change in value of the derivative liability during the period, and debt discount of $38,600 (year ended November 30, 2012 - $nil) was accreted to the statement of operations.
During the year ended November 30, 2013, the Company issued 192,576 common shares upon the conversion of $42,500 of the principal balance plus $1,700 accrued interest into common stock, and $42,300 of the derivative liability was re-classified as additional paid in capital upon conversion.
As at November 30, 2013, accrued interest of $nil (November 30, 2012 - $1,593), debt discount of $nil (November 30, 2012 - $nil) and a derivative liability of $nil (November 30, 2012 - $nil) was recorded.
Promissory Note #12
On August 17, 2012, the Company received $42,500 cash and the Company issued a convertible promissory note in the amount of $42,500. The promissory note is unsecured, bears interest at 8% per annum, and matures on May 21, 2013. During the year ended November 30, 2013 the Company accrued $722 (year ended November 30, 2012 - $978) in interest expense.
After 180 days the note may be converted at the option of the holder into Common stock of the Company. The conversion price is defined as “48% multiplied by market price where market price is determined as 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”. The Company determined that the embedded conversion feature would be a derivative liability based upon its variable conversion terms once the holders conversion rights were triggered.
In February 2013, upon the holders option to convert becoming active, the Company recorded debt discount and a derivative liability of $43,600 being the fair value of the conversion feature, which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term on the note or to the date of conversion. The derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period.
F- 19
During the year ended November 30, 2013, the Company recorded a loss of $60,551 (year ended November 30, 2012 – $nil) due to the change in value of the derivative liability during the period, and debt discount of $43,600 (year ended November 30, 2012 - $nil) was accreted to the statement of operations.
During the year ended November 30, 2013 the Company issued 425,781 common shares upon the conversion of $42,500of the principal balance and $1,700 of accrued interest into common stock, and $104,151 of the derivative liability was re-classified as additional paid in capital upon conversion.
As at November 30, 2013, accrued interest of $nil (November 30, 2012 - $978), debt discount of $nil (November 30, 2012 - $nil) and a derivative liability of $nil (November 30, 2012 - $nil) was recorded.
Promissory Note #13
On September 12, 2012, the Company received $75,000 cash and the Company issued a convertible promissory note in the amount of $75,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on June 14, 2013. During the year ended November 30, 2013, the Company accrued $5,882 (year ended November 30, 2012 - $1,299) in interest expense.
After 180 days the note may be converted at the option of the holder into Common stock of the Company. The conversion price is defined as “50% multiplied by market price where market price is determined as the average of the lowest three bid prices during the ten trading days prior to the date of conversion”. The Company determined that the embedded conversion feature would be a derivative liability based upon its variable conversion terms once the holders conversion rights were triggered.
In March 2013, upon the holders option to convert becoming active, the Company recorded debt discount of $75,000, charged $1,800 to interest expense and also recorded a derivative liability of $76,800 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term on the note or to the date of conversion. The derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period.
During the year ended November 30, 2013, the Company recorded a loss of $33,869 (year ended November 30, 2012 – $nil) due to the change in value of the derivative liability during the period, and debt discount of $75,000 (year ended November 30, 2012 - $nil) was accreted to the statement of operations.
During the year ended November 30, 2013, the Company issued 558,167 common shares upon the conversion of $10,940 of the principal balance into common stock, and $20,372 of the derivative liability was re-classified as additional paid in capital upon conversion.
As at November 30, 2013, accrued interest of $7,181 (November 30, 2012 - $1,299) debt discount of $nil (November 30, 2012 - $nil) and a derivative liability of $90,297 (November 30, 2012 - $nil) was recorded.
Promissory Note #14
On October 24, 2012, Notes 5 and 9 were amalgamated and a new amended note was created, in the amount of $50,000. The promissory note is unsecured, bears interest at 10% per annum, and is due upon demand. During the year ended November 30, 2013 the Company accrued $1,588 (year ended November 30, 2012 - $507) in interest expense.
The note may be converted at the option of the holder at any time into Common stock of the Company. The conversion price is defined as “50% multiplied by the market price, where market price is determined as the lowest 3 closing bid prices during the ten trading day period ending the day prior to conversion. The Company determined that the embedded conversion feature would be a derivative liability based upon its variable conversion terms.
Upon inception the Company recorded a debt discount and a derivative liability of $45,200 being the fair value of the conversion feature, which was determined using the Black-Scholes valuation model. The debt discount has been charged immediately to the statement of operations as the note is due upon demand. The derivative liability is
F- 20
revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period.
During the year ended November 30, 2013, the Company recorded a loss of $6,300 (year ended November 30, 2012 - $nil) due to the change in value of the derivative liability during the period.
During the year ended November 30, 2013, the Company issued 245,867 common shares upon the conversion of $50,000 of the principal balance of the note into common stock, and $51,500 of the derivative liability was reclassified as additional paid in capital upon conversion. The holder of the note waived the remaining interest balance and a credit of $2,095 was charged to the statement of operations.
As at November 30, 2013, accrued interest of $nil (November 30, 2012 - $507), debt discount of $nil (November 30, 2012 - $nil) and a derivative liability of $nil (November 30, 2012 - $45,200) was recorded.
Promissory Note #15
On June 1, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $88,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on December 1, 2013. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the year ended November 30, 2013, the Company accrued $3,510 (November 30, 2012 - $nil) in interest expense.
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 due on demand and 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 year ended November 30, 2013 interest expense relating to the beneficial conversion feature of this convertible note of $88,000 (November 30, 2012 - $nil) was recorded in the financial statements, with a corresponding increase to additional paid in capital.
Promissory Note #16
On July 1, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $11,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on January 1, 2014. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the year ended November 30, 2013, the Company accrued $366.47 (November 30, 2012 - $nil) in interest expense.
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 due on demand and 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 year ended November 30, 2013 interest expense relating to the beneficial conversion feature of this convertible note of $11,000 (November 30, 2012 - $nil) was recorded in the financial statements, with a corresponding increase to additional paid in capital.
Promissory Note #17
On August 1, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $11,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on February 1, 2014. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the year ended November 30, 2013, the Company accrued $292 (November 30, 2012 - $nil) in interest expense.
F- 21
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 due on demand and 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 year ended November 30, 2013 interest expense relating to the beneficial conversion feature of this convertible note of $11,000 (November 30, 2012 - $nil) was recorded in the financial statements, with a corresponding increase to additional paid in capital.
Promissory Note #18
On August 7, 2013 the Company entered into a Convertible Promissory Note with Syndication Capital in the sum of $50,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on February 7, 2014. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the year ended November 30, 2013, the Company accrued $1,260 (November 30, 2012 - $nil) in interest expense.
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 due on demand and 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 year ended November 30, 2013 interest expense relating to the beneficial conversion feature of this convertible note of $50,000 (November 30, 2012 - $nil) was recorded in the financial statements, with a corresponding increase to additional paid in capital.
Promissory Note #19
On September 1, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $11,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on March 1, 2014. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the year ended November 30, 2013, the Company accrued $217 (November 30, 2012 - $nil) in interest expense.
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 due on demand and 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 year ended November 30, 2013 interest expense relating to the beneficial conversion feature of this convertible note of $11,000 (November 30, 2012 - $nil) was recorded in the financial statements, with a corresponding increase to additional paid in capital.
Promissory Note #20
On October 1, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $11,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on April 1, 2014. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the year ended November 30, 2013, the Company accrued $145 (November 30, 2012 - $nil) in interest expense.
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 due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
F- 22
During the year ended November 30, 2013 interest expense relating to the beneficial conversion feature of this convertible note of $11,000 (November 30, 2012 - $nil) was recorded in the financial statements, with a corresponding increase to additional paid in capital.
Promissory Note #21
On November 1, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $16,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on May 1, 2014. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the year ended November 30, 2013, the Company accrued $102 (November 30, 2012 - $nil) in interest expense.
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 due on demand and 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 year ended November 30, 2013 interest expense relating to the beneficial conversion feature of this convertible note of $16,000 (November 30, 2012 - $nil) was recorded in the financial statements, with a corresponding increase to additional paid in capital.
Promissory Note #22
On November 30, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $50,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on May 30, 2014. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the year ended November 30, 2013, the Company accrued $102 (November 30, 2012 - $nil) in interest expense.
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 due on demand and 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 year ended November 30, 2013 interest expense relating to the beneficial conversion feature of this convertible note of $50,000 (November 30, 2012 - $nil) was recorded in the financial statements, with a corresponding increase to additional paid in capital.
Note 9Derivative Liabilities
The Company issued financial instruments in the form of convertible notes with embedded conversion features. Many of the convertible notes payable have conversion rates, which are indexed to the market value of the Company’s stock price.
During the year ended November 30, 2013, the Company recorded derivative liabilities for embedded conversion features related to convertible notes payable of face value $159,000 (year ended November 30, 2012 - $117,100). During the year ended November 30, 2013, $49.340 (year ended November 30, 2012, $172,800) of convertible notes payable and accrued interest was converted into common stock of the Company. For the year ended November 30, 2013, the Company performed a final mark-to-market adjustment for the derivative liability related to the convertible notes of and the carrying amount of the derivative liability related to the conversion feature of $234,823 (year ended November 30, 2012 - $228,500) was reclassed to additional paid in capital on the date of conversion in the statement of shareholders’ deficit. During the year ended November 30, 2013, the Company recognized a loss of $107,920 (year ended November 2012 - $40,600) based on the change in fair value (mark-to market adjustment) of the derivative liability associated with the embedded conversion features in the accompanying statement of operations.
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These derivative liabilities have been measured in accordance with fair value measurements, as defined by GAAP ASC 815. The valuation assumptions are determined by Level 3 inputs. The following table represents the Company’s derivative liability activity for the embedded conversion features discussed above:
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|
| November 30, |
| November 30, |
|
| 2013 |
| 2012 |
Balance, beginning of year | | $ 58,200 | | $ 129,000 |
Initial recognition of derivative liability |
| 159,000 |
| 117,100 |
Fair value change in derivative liability | | 107,920 | | 40,600 |
Conversion of derivative liability to APIC |
| (234,823) |
| (228,500) |
Balance as of November 30, 2013 | | $ 90,297 | | $ 58,200 |
Note 10Asset Retirement Obligations
During the period November 2007 to October 2009, the Company acquired in tranches a 50% working interest in the Hayter 10-8-40-1 W4M oil and gas well in Alberta Canada, known as the “Hayter Prospect”. During the year ended November 30, 2012, due to financial restrictions in the current capital markets, management determined the focus of the Company in the future would predominantly be the exploration and development of the Zoro Mineral Property, and as the Company had no current plans to further develop the Hayter property, the Company recorded an impairment provision of $135,427 during the fiscal year ended November 30, 2012, resulting in the book value of the Hayter prospect being $nil at November 30, 2012. As of November 30, 2013 and November 30, 2012, the Company determined the asset retirement obligation to be $18,861 and $16,845, respectively.
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 asset retirement obligations at February, 2013 to be $16,889 based on a total undiscounted liability of $17,057 (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.
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|
| November 30, |
| November 30, |
|
| 2013 |
| 2012 |
Balance, beginning of year | | $ 16,845 |
| $ 13,524 |
Liabilities incurred |
| - |
| - |
Accretion expense | | 2,529 |
| 2,238 |
Effect of foreign exchange |
| (513) |
| 1,083 |
| | $ 18,861 |
| $ 16,845 |
Note 11Capital Stock
Authorized
10,000,000 Preferred shares, par value $0.001 – 4,000,000 issued
(November 30, 2012 - none issued)
750,000,000 Common shares par value $0.10 –3,004,610 issued
(November 30, 2012 – 1,054,169 shares issued)
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On June 6, 2013, the Board of Directors authorized a 100:1 reverse stock split of the common shares. The reverse stock split received regulatory approval on June 28, 2013. The record date for the reverse stock split was June 14, 2013. The authorized number of common shares remained unchanged. All references in the accompanying financial statements to the number of common shares have been restated to reflect the reverse stock split.
Issued
Preferred Stock
On May 14, 2013, the Company issued 4,000,000 preferred shares pursuant to the Mexican mineral property option agreement. Each share has an underlying voting right equivalent to 100 common shares, and is convertible into 100 common shares of the Company.
Common Stock
Between December 12, 2012 and November 30, 2013, the Company issued an aggregate of 245,868 common shares with an aggregate fair value of $100,200, upon the conversion of $50,000 of a convertible note, which was due upon demand.
Between January 12, 2013, and August 31, 2013, the Company issued 192,576 common shares with an aggregate fair value of $86,500, upon the conversion of accrued interest of $1,700 and $42,500 principal of a convertible note.
Between May 2, 2013 and August 31, 2013, the Company issued 189,679 common shares with an aggregate fair value of $51,300, upon the conversion of $25,900 of a convertible note.
Between June 1, 2013, and August 31, 2013, the Company issued 236,102 common shares upon the conversion of accrued interest of $900 and $16,600 principal of a convertible note.
Between September 1, 2013, and November 30, 2013, the Company issued 558,167 common shares upon the conversion of principal of $10,940 of a convertible note.
Note 12.Supplemental Disclosure with Respect to Cash Flows
During the year ended November 30, 2013, the following non-cash investing and financing activities occurred:
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| i) | 4,000,000 preferred shares were issued with a fair value of $1,160,000 pursuant to a mineral property agreement. |
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| ii) | An aggregate of 245,868 common shares were issued with a fair value of $100,200 upon the conversion into stock of $50,000 of the principal of a convertible note payable. |
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| iii) | An aggregate of 192,576 common shares were issued with a fair value of $86,500 upon the partial conversion into stock of accrued interest of $1,700 and $42,500 principal of a convertible note payable.
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| | |
| iv) | An aggregate of 453,753 common shares were issued with a fair value of $70,532 upon the partial conversion into stock of accrued interest of $1,700 and $42,500 of the principal of a convertible note payable. |
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| v) | 221,250 common shares were issued with a fair value of $50,888 to settle amounts owing to the President amounting to $22,125. |
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| vi) | 278,750 common shares were issued pursuant to a management fee contract with the President. |
|
vii) |
An aggregate of 558,167 common shares were issued with a fair value of $16,826 upon the partial conversion into stock of $10,940 of the principal of a convertible note payable. |
During the year ended November 30, 2012, the following non-cash investing and financing activities occurred:
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| i) | 26,919 common shares were issued pursuant to a consultancy agreement. |
| | |
| ii) | An aggregate of 24,865 common shares were issued with a fair value of $65,300 upon the conversion into stock of $33,800 of accrued interest and principal of a convertible note payable.
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Note 13Commitment
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|
| On May 5, 2012, the Company entered into a consultancy agreement with Primary Capital LLC. (“Primary”), whereby Primary would provide financial advisory and investment banking services to the Company for a period of two years commencing May 7, 2012. Pursuant to the agreement, the Company paid Primary a non-refundable signing fee of $10,000 and issued Primary common stock equivalent to 4.9% (the “Applicable Percentage”) of the common shares on a fully diluted basis after giving effect to the conversion of all outstanding derivative securities at the time of inception of the agreement. |
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|
| Accordingly, on May 5, 2012, 26,919 common shares were issued with a fair value of $53,838. |
Pursuant to the agreement should the Company issue further potentially dilutive derivative instruments, or issue stock from treasury at any time, then within 5 days of the end of the fiscal quarter in which such instruments or stock was issued, the Company will issue to Primary additional common shares (the “Adjustment shares”) such that Primary continues to hold common stock equivalent to the Applicable Percentage.
Should the Board of Directors grant options, warrants or other securities pursuant to a restricted stock purchase plan or stock option plan approved by the stockholders and Board of Directors of the Company, to employees or Directors such grants shall be considered Excluded Securities for the purposes of determining the Applicable Percentage and the calculation of Adjustment shares in future periods.
Also if the Company completes any financing during the engagement period and also within 2 years of the termination of the agreement with any party introduced to the Company by Primary, Primary will be entitled to:
| | |
| i) | a cash fee of 8% of the gross proceeds of the financing, |
| | |
| ii) | a 5 year warrant to purchase that number of shares equal to 8% of the number of shares issued in the financing on the same terms as the financing. Any such warrant issued will be in a form provided by Primary and may include terminology allowing for full ratchet anti-dilution provisions, standard and cashless exercise provisions and the same registration rights as received by the original investors. |
The agreement can be terminated by either party by providing written notice at any time after the first anniversary of the agreement if either party is in breach of the agreement and fails to cure such breach within 15 days after it receives notice of such breach. During the quarter ended May 31, 2013, the Company terminated the contract.
Note 14Subsequent Events
Note 15Prior Year Restatement
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| i) | Mineral Property Option Costs |
| | |
|
| The Company reviewed its accounting policy for the capitalization of mineral option costs, and has determined that the mineral option costs incurred in the year ended November 30, 2010, amounting to $59,600 were expensed, when they should have been capitalized and accordingly, the results for the year ended November 30, 2010, were restated. The effect of the restatement was to increase the value of the Mineral Property Option by $59,600 at November 30, 2010, 2011 and 2012 and to reduce the loss for the year ended November 30, 2010 by $59,600, resulting in the accumulated deficit being reduced by $59,600 at November 30, 2010, 2011 and 2012, respectively. |
| | |
| ii) | Convertible Notes Payable |
| | |
|
| The Company has determined that certain transactions relating to the convertible notes payable were not correctly accounted for in the three and six month periods ended May 31, 2012 and accordingly the results of the six and three month periods ended May 31, 2012 have been restated. |
The Company did not recognize any embedded derivative liabilities arising upon the inception or during the term of certain convertible notes payable. As a result of this, at May 31, 2012, the value of the convertible notes on the balance sheet was overstated by $150,724 and derivative liabilities were understated by $170,900.
In the condensed consolidated statement of loss, for the six month period ended May 31, 2012 accretion of convertible debt and interest discount expense was overstated by $68,311, interest expense on beneficial conversion feature of convertible notes was overstated by $140,000 gain on elimination of convertible debt was overstated by $21,888 and interest expense was understated by $162,868. Finally, the loss on change in fair value of derivative liability was understated by $40,200.
In the condensed consolidated statement of loss, for the three month period ended May 31, 2012 accretion of convertible debt and interest discount expense was overstated by $30,630, interest expense on beneficial conversion feature of convertible notes was overstated by $50,000 gain on elimination of convertible debt was overstated by $21,888 and interest expense was understated by $66,434. Finally the loss on change in fair value of derivative liability was understated by $21,000.
| | |
| iii) | Accumulated Other Comprehensive Income |
| | |
|
| The Company also determined the accounting for foreign exchange with respect to the translation adjustments arising on the translation of its Canadian subsidiary had been incorrectly recorded. Such gains or losses arising had been included in the operations of the year, rather than being treated as elements of other comprehensive income, which forms a separate part of equity. |
| | |
|
| As a result of the restatement, the Company has increased the balance of other comprehensive income at November 30, 2011 by $6,388 and also increased the accumulated deficit by a corresponding amount. During the six month period ended May 31, 2012, foreign exchange charged to the income statement was reduced by $830 and a corresponding reduction to accumulated comprehensive income was recorded. During the three month period ended May 31, 2012, foreign exchange credited to the income statement was reduced by $454 and a corresponding increase to accumulated comprehensive income was recorded. |
The net effect of the above restatements at May 31, 2012 is to increase the carrying value of the mineral property by $59,600 to $139,600, reduce the carrying value of the convertible notes payable from $357,432 to $206,708 and to increase the derivative liability from $nil to $170,900. Accumulated other comprehensive income increased from $nil to $6,561. Also the previously reported loss for the six month period ended May 31, 2012, was increased by $16,095 to $416,491 and the previously reported loss for the three month period ended May 31, 2012 increased by $29,145 to $221,476. The previously reported accumulated deficit at May 31, 2012 increased by 44,176 from $3,300,141 to $3,255,965.
F- 14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT
(A) PREVIOUS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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|
|
(i) | On October 21, 2013, Anton & Chia LLP (the “Former Accountant”) resigned as the independent registered public accounting firm of the Company. |
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|
|
(ii) | The Company’s Board of Directors participated in and approved the decision to accept the Former Accountant’s resignation. |
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|
|
(iii) | The reports of Former Accountant on the Company’s consolidated unaudited financial statements for the audit as of November 30, 2012, and for the interim periods through August 31, 2013, contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle except to indicate that there was substantial doubt about the Company’s ability to continue as a going concern. |
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(iv) | The Company has provided the Former Accountant with a copy of the disclosures it is making in response to this Item. The Company has requested the Former Accountant to furnish a letter addressed to the Commission stating whether it agrees with the statements made by the Company and, if not, stating the respects in which it does not agree. The Company has filed the letter furnished by the Former Accountant as an exhibit as part of its Current Report on Form 8-K that was filed with the SEC on October 25, 2013, and is incorporated by reference herein.
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(B) NEW INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
On November 18, 2013, the Company engaged W. T. Uniack & Co. CPA’s as its new independent registered public accounting firm. During the two most recent fiscal years and through November 18, 2013, the Company had not consulted with W. T. Uniack & Co. CPA’s regarding any of the following:
1.
The application of accounting principles to a specific transaction, either completed or proposed;
2.
2. The type of audit opinion that might be rendered on the Company’s consolidated financial statements, and none of the following was provided to the Company (a) a written report, or (b) oral advice that W. T. Uniack & Co. CPA’s concluded was an important factor considered by the Company in reaching a decision as to accounting, auditing or financial report issues; or
3.
Any matter that was the subject of a disagreement, as that term is defined in item 304(a)(1)(iv) of Regulation S-K.
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
The Company has adopted and maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this annual report, is collected, recorded, processed, summarized and reported within the time periods specified in the rules of the SEC. The Company’s disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required
15
disclosure. As required under Exchange Act Rule 13a-15, the Company’s management, including the Chief Executive Officer who also serves as our Principal Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures as of the end of the period covered by this report. Inasmuch as we only have one individual serving as our officer, director and employee we have determined that the Company has, per se, inadequate controls and procedures over financial reporting.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: domination of management by a single individual without adequate compensating controls, inadequate segregation of duties consistent with control objectives, and lack of an audit committee. These material weaknesses were identified by our Chief Executive who also serves as our Financial Officer in connection with the above annual evaluation.
Management believes that the material weaknesses did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and inadequate segregation of duties results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
Management recognizes that its controls and procedures would be substantially improved if we had an audit committee and two individuals serving as officers and as such is actively seeking to remediate this issue. Management believes that the material weakness in its controls and procedures referenced did not have an effect on our financial results. Based on that evaluation, the Chief Executive Office who also serves as our Principal Financial Officer concluded that the disclosure controls and procedures are ineffective.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements. Management conducted an assessment of the Company’s internal control over financial reporting based on the framework and criteria established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework. Based on the assessment, management concluded that, as of November 30, 2013, the Company’s internal control over financial reporting is ineffective based on those criteria.
The Company’s management, including its Chief Executive Officer, who also serves as our Principal Financial Officer, does not expect that the Company’s disclosure controls and procedures and its internal control processes will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of error or fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that the breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Management’s Remediation Initiatives
In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:
16
We will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. And, we plan to appoint one or more outside directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us.
Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board.
We will work as quickly as possible to implement these initiatives; however, the lack of adequate working capital and positive cash flow from operations will likely slow this implementation.
Changes in Internal Control
There have been no changes in internal controls over the financial reporting that occurred during the period ending November 30, 2013, that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.
ITEM 9B. OTHER INFORMATION.
Name Change and Reverse Stock Split
Effective June 28, 2013, the Company with the approval from the Financial Industry Regulatory Authority (“FINRA”), the Company has among other things (i) changed its name from “Force Energy Corp.” to “Force Minerals Corporation”, and (ii) authorized and approved a reverse stock split of One for One Hundred (1:100) of our total issued and outstanding shares of common stock (the "Stock Split"). The Stock Split decreased our total issued and outstanding shares of common stock from 230,992,890 to 2,309,928 shares of common stock. The common stock will continue to be $0.001 par value. The shareholder record date was June 14, 2013. The Stock Split shares are payable upon surrender of certificates to the Company's transfer agent. Fractional shares will be rounded upward.
Certificate of Designation
On October 28, 2013, the Board of Directors of the Company with the approval of a majority vote of its shareholders, designated four million (4,000,000) shares of the ten million (10,000,000) authorized preferred stock of our company as “Series A Preferred Stock” by filing a Certificate of Designation with the Secretary of State of the State of Nevada. The Series A Preferred Stock has 100 votes per share and is convertible into shares of our common stock. The Holders of the Series A Preferred Stock, may not convert and hold more than 9.9% of the common stock outstanding at any one time.
Convertible Promissory Notes:
On September 1, 2013 the Company entered into a Convertible Promissory Note with Direct Capital Group Inc. in the sum of $11,000.00 with a March 1, 2014 maturity date.
On October 1, 2013 the Company entered into a Convertible Promissory Note with Direct Capital Group Inc. in the sum of $11,000.00 with an April 1, 2014 maturity date.
17
On October 11, 2013, the Company authorized and directed to amend and restate the $20,000.00 note originally issued to Geotech International, Ltd on February 15, 2012, Promissory Note #6, into a new promissory note to Direct Capital Group Inc. in the amount of $20,000.00 to provide conversion features equal to the lower of (i) $0.001 per share or (ii) 60% of the lowest closing bid price of the last day of 5 trading days prior to conversion.
On October 11, 2013, the Company authorized and directed to amend and restate the $20,000.00 note originally issued to Pea Soup Inc. on February 15, 2012, Promissory Note #7, into a new promissory note to Direct Capital Group Inc. in the amount of $20,000.00 to provide conversion features equal to the lower of (i) $0.001 per share or (ii) 60% of the lowest closing bid price of the last day of 5 trading days prior to conversion.
On October 11, 2013, the Company authorized and directed to amend and restate the $20,000.00 note originally issued to Watermark Holdings Inc. on February 15, 2012, Promissory Note #8, into a new promissory note to Direct Capital Group Inc. in the amount of $20,000.00 to provide conversion features equal to the lower of (i) $0.001 per share or (ii) 60% of the lowest closing bid price of the last day of 5 trading days prior to conversion.
On November 1, 2013, the Company entered into a Convertible Promissory Note with Direct Capital Group Inc. in the sum of $16,000 with a May 1, 2014 maturity date.
On November 30, 2013, the Company entered into a Convertible Promissory Note with Direct Capital Group Inc. in the sum of $50,000 with a May 30, 2014 maturity date.
On December 1, 2013, the Company entered into a Convertible Promissory Note with Direct Capital Group Inc. in the sum of $16,000 with a June 1, 2014 maturity date.
On January 1, 2014, the Company entered into a Convertible Promissory Note with Direct Capital Group Inc. in the sum of $16,000 with a July 1, 2014 maturity date.
On February 1, 2014, the Company entered into a Convertible Promissory Note with Direct Capital Group Inc. in the sum of $16,000 with an August 1, 2014 maturity date.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
Identification of Directors and Executive Officers
The following table sets forth the names and ages of our current directors and executive officers:
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Name | Age | Position with the Company | Position Held Since |
Tim DeHerrera | 56 | President, Secretary, Treasurer, Chairman,Director | July 21, 2010 |
The Board of Directors has no nominating, audit or compensation committee at this time.
Term of Office
Each director is elected by the Board of Directors and serves until his or her successor is elected and qualified, unless he or she resigns or is removed earlier. Each of our officers is elected by the Board of Directors to a term of one (1) year and serves until his or her successor is duly elected and qualified, or until he or she is earlier removed from office or resigns.
Background and Business Experience
The business experience during the past five years of the person presently listed above as an Officer or Director of the Company is as follows:
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Tim DeHerrera:Mr. DeHerrera currently serves as a director of the publicly held corporation Grid Petroleum Corp. He was President of Bonfire Productions Inc. from September 2009 until May 2010. During January 2008 until January 2010, he was also President and Chairman of the Intervision Network Corporation. Intervision Network, was a technology business in IPTV broadcasting and related live Internet-based multimedia transmission technologies including a global content delivery network. From May 2006 until December 2007 he was President of Atlantis Technology Group a technology based company. Lastly, during the past several years he has been a consultant to several other companies.
Identification of Significant Employees
We have no significant employees, other than Tim DeHerrera, our President, Treasurer, Secretary, Director and Chairman.
Family Relationship
We currently do not have any officers or directors of our Company who are related to each other.
Involvement in Certain Legal Proceedings
During the past ten years no director, executive officer, promoter or control person of the Company has been involved in the following:
(1)
A petition under the Federal bankruptcy laws or any state insolvency law which was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
(2)
Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
(3)
Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:
i.
Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
ii.
Engaging in any type of business practice; or
iii.
Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;
(4)
Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this section, or to be associated with persons engaged in any such activity;
(5)
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Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;
(6)
Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
(7)
Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
i.
Any Federal or State securities or commodities law or regulation; or
ii.
Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
iii.
Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
(8)
Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Audit Committee and Audit Committee Financial Expert
The Company does not have an audit committee or an audit committee financial expert (as defined in Item 407 of Regulation S-K) serving on its Board of Directors. All current members of the Board of Directors lack sufficient financial expertise for overseeing financial reporting responsibilities. The Company has not yet employed an audit committee financial expert on its Board due to the inability to attract such a person.
The Company intends to establish an audit committee of the Board of Directors, which will consist of independent directors. The audit committee’s duties will be to recommend to the Company’s Board of Directors the engagement of an independent registered public accounting firm to audit the Company’s financial statements and to review the Company’s accounting and auditing principles. The audit committee will review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent registered public accounting firm, including their recommendations to improve the system of accounting and internal controls. The audit committee will at all times be composed exclusively of directors who are, in the opinion of the Company’s Board of Directors, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles.
Code of Ethics
We adopted a Code of Ethics applicable to all of our directors, officers, employees and consultants, which is a “code of ethics” as defined by applicable rules of the SEC. Our Code of Ethics was attached as an exhibit to our annual report filed on Form 10-K on March 15, 2009. If we make any amendments to our Code of Ethics other than technical, administrative, or other non-substantive amendments, or grant any waivers, including implicit waivers, from a provision of our Code of Ethics to our chief executive officer, chief financial officer, or certain other finance
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executives, we will disclose the nature of the amendment or waiver, its effective date and to whom it applies in a Current Report on Form 8-K filed with the SEC.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of change in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us under Rule 16a-3(e) during the year ended November 30, 2013, Forms 5 and any amendments thereto furnished to us with respect to the year ended November 30, 2013, and the representations made by the reporting persons to us, we believe that during the year ended November 30, 2013, our executive officers and directors and all persons who own more than ten percent of a registered class of our equity securities complied with all Section 16(a) filing requirements.
ITEM 11. EXECUTIVE COMPENSATION
The table set forth below summarizes the annual and long-term compensation for services in all capacities to us payable to our officers and directors for the fiscal year ended November 30, 2013. Our Board of Directors may adopt an incentive stock option plan for our executive officers that would result in additional compensation.
Summary Compensation Table
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position | Fiscal Year Ended 11/30 |
| Salary ($) |
|
| Bonus ($) |
|
| Stock Awards ($) |
|
| Option Awards ($) |
|
| Non-Equity Incentive Plan Compensation ($) |
|
| Nonqualified Deferred Compensation Earnings ($) |
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| All Other Compensation ($) |
|
| Total ($) |
|
Tim DeHerrera Director (1) | 2013 | $ |
| 120,000 |
|
|
| -0- |
|
|
| -95,400- |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
|
| -$90,000- |
|
| $ | 305,400 |
|
| 2012 | $ |
| 111,275 |
|
|
| -0- |
|
|
| 75,000 |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
|
| -0- |
|
|
| $186,275 |
|
| |
(1) The Company’s officer and director currently devote approximately 30-40 hours per week to manage the affairs of the Company, including, but not limited to the upkeep of Force Minerals Corp., and the research and development associated with expanding the Company to new markets. Mr. DeHerrera is the President, Secretary, Treasurer, Director and Chairman of the Company.
| (2) |
Narrative Disclosure to Summary Compensation Table
On August 10, 2010, we entered into a written Employment Agreement (the “Agreement”) with Tim DeHerrera (“DeHerrera”). Pursuant to the terms and conditions of the Agreement:
·
For a 12-month period commencing as of July 23, 2010, DeHerrera will serve as our President and Chief Executive Officer and as a member of the Board of Directors.
·
During his tenure with us, DeHerrera responsibilities will include the following:
o
Development of Management Strategy and Corporate Vision
o
Review and Development of Business Strategies
o
Organizational and Personnel Development
o
General Review and Development of Corporate Material
o
Corporate and Client Restructuring
o
Review and assisting in preparation of corporate filing
·
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DeHerrera will earn an annual salary of $99,500 payable as follows:
o
$2,500 per month for the first three months of employment; $4,000 per month for months 4-6 of employment; and $5,000 per month for the final six months of the employment term. If we do not possess the capital to make cash payments to DeHerrera, then the monies owed him shall accrue as insider debt, which DeHerrera will have the option to convert into shares of our common stock at $.10 per share; and
o
2,500,000 shares of our stock which was payable upon execution of the Agreement. If the Agreement is terminated by either DeHerrera or us, then DeHerrera shall owe to us an amount of shares equal to 100,000 shares multiplied by the number of months he failed to work for us during that time period from July 23, 2010 to July 22, 2011.
·
The Agreement may be terminated with 30 days’ notice by either us or DeHerrera.
On July 18, 2011, we entered into a new employment contract with DeHerrera as President, which expires July 18, 2013. Pursuant to the contract, DeHerrera received 2,500,000 common shares having a fair value of $125,000. DeHerrera 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 DeHerrera 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 DeHerrera any accrued unpaid fees may be converted into common stock at $0.025 per share.
On July 16, 2012, we entered into an addendum to the contract which expires on July 15, 2014. Pursuant to the contract DeHerrera received 7,500,000 common shares and will continue to receive 7,500,000 common shares upon the anniversary of the addendum. DeHerrera will receive $10,000 per month for months 25-36 of the contract and an annual monthly increase of $2,500 per month thereafter. Unless the contract is terminated by either party giving 45 days written notice the contact will automatically renew. If we do not have sufficient cash resources to settle the cash element of the contract, then at the request of DeHerrera any accrued unpaid fees may be converted into common stock at $0.01 per share.
Outstanding Equity Awards at Fiscal Year-End
No executive officer received any equity awards, or holds exercisable or exercisable options, as of the year ended November 30, 2013.
