UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended October 31, 2013
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to _____________
Commission file number: 333-184061
FREEDOM PETROLEUM INC.
(Exact name of registrant as specified in its charter)
Nevada 45-5440446
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
8580 E. Bellewood Place, Denver CO 80237
(Address of principal executive offices)
1-800-493-0740
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act (Check one).
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of December 13, 2013 there were 52,200,000 shares of the issuer's common
stock, par value $0.0001, outstanding.
FREEDOM PETROLEUM INC.
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements 3
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Item 4. Controls and Procedures 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 1A. Risk Factors 16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Mine Safety Disclosures 16
Item 5. Other Information 16
Item 6. Exhibits 17
2
ITEM 1. FINANCIAL STATEMENTS.
FREEDOM PETROLEUM, INC.
(An Exploration Stage Company)
BALANCE SHEETS
(Unaudited)
As of As of
October 31, July 31,
2013 2013
-------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 2,857 $ 1,674
-------- --------
Total Current Assets 2,857 1,674
-------- --------
Total Assets $ 2,857 $ 1,674
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable and accrued expenses $ 3,100 $ 6,400
Due to related parties 13,824 5,824
-------- --------
Total Current Liabilities 16,924 12,224
-------- --------
Stockholders' Deficit
Preferred stock, $0.0001 par value; 20,000,000 shares authorized,
0 shares issued and outstanding -- --
Common stock, $0.0001 par value, 100,000,000 shares authorized;
52,200,000 shares issued and outstanding 5,220 5,220
Additional paid-in capital 62,740 62,740
Deficit accumulated during the exploration stage (82,027) (78,510)
-------- --------
Total Stockholders' Deficit (14,067) (10,550)
-------- --------
Total Liabilities and Stockholders' Deficit $ 2,857 $ 1,674
======== ========
The accompanying notes are an integral part of these financial statements.
3
FREEDOM PETROLEUM, INC.
(An Exploration Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
Period From
June 13, 2012
(Date of Inception)
Three Months Ended October 31, through
--------------------------------- October 31,
2013 2012 2013
------------ ------------ ------------
GROSS REVENUES $ -- $ -- $ --
OPERATING EXPENSES
General and administrative 1,417 -- 31,727
Professional fees 3,000 3,355 26,000
Consulting fees - related party -- -- 10,000
Website design -- -- 800
Impairment -- -- 15,000
------------ ------------ ------------
TOTAL OPERATING EXPENSES 4,417 3,355 83,527
------------ ------------ ------------
LOSS FROM OPERATIONS (4,417) (3,355) (83,527)
OTHER INCOME (EXPENSE) 900 -- 1,500
------------ ------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES (3,517) (3,355) (82,027)
PROVISION FOR INCOME TAXES -- -- --
------------ ------------ ------------
NET LOSS $ (3,517) $ (3,355) $ (82,027)
============ ============ ============
NET LOSS PER SHARE: BASIC AND DILUTED $ (0.00) $ (0.00)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
BASIC AND DILUTED 52,200,000 27,160,000
============ ============
The accompanying notes are an integral part of these financial statements.
4
FREEDOM PETROLEUM, INC.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
Period From
June 13, 2012
(Date of Inception)
Three Months Ended October 31, through
--------------------------- October 31,
2013 2012 2013
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (3,517) $ (3,355) $(82,027)
Adjustments to Reconcile Net Loss to Net
Cash Provided by Operating Activities
Impairment loss -- -- 15,000
Change in operating assets & LIABILITIES
Increase (decrease) in accounts payable and accrued expenses (3,300) (19,650) 3,100
-------- -------- --------
Net Cash Provided by (Used in) Operating Activities (6,817) (23,005) (63,927)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of unproved oil and gas properties -- -- (15,000)
-------- -------- --------
Net Cash Used in Investing Activities -- -- (15,000)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Loan from related party -- -- 3,000
Increase in due to related parties 8,000 -- 13,824
Proceeds from issuance of common stock -- -- 64,960
-------- -------- --------
Net Cash Provided by Financing Activities 8,000 -- 81,784
-------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 1,183 (23,005) 2,857
Cash and cash equivalents, beginning of the period 1,674 24,230 --
-------- -------- --------
Cash and cash equivalents, end of the period $ 2,857 $ 1,225 $ 2,857
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes $ -- $ -- $ --
======== ======== ========
Cash paid for interest $ -- $ -- $ --
======== ======== ========
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING INFORMATION:
Forgiveness of related party payable recorded as
contributed capital $ -- $ -- $ 3,000
======== ======== ========
The accompanying notes are an integral part of these financial statements.
5
FREEDOM PETROLEUM, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2013
(Unaudited)
NOTE 1 - GENERAL ORGANIZATION AND BUSINESS
Freedom Petroleum, Inc. ("the Company") was incorporated under the laws of the
State of Nevada, U.S. on June 13, 2012. The Company is in the exploration stage
as defined under Accounting Standards Codification ("ASC 915") and it intends to
engage in the exploration and development of oil and gas properties.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
BASIS OF PRESENTATION
The financial statements of the Company have been prepared in accordance with
generally accepted accounting principles in the United States of America and are
presented in U.S. dollars. The Company's fiscal year end is July 31.
BASIS OF ACCOUNTING
The accompanying financial statements have been prepared using the accrual basis
of accounting in accordance with accounting principles generally accepted in the
United States of America and are presented in U.S. dollars. The Company is
currently an exploration stage enterprise. An exploration stage enterprise is
one in which planned principal operations have not commenced or if its
operations have commenced, there has been no significant revenues there from.
All losses accumulated since the inception of the business have been considered
as part of its exploration stage activities.
DEVELOPMENT STAGE COMPANY
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles related to development-stage companies.
A development-stage company is one in which planned principal operations have
not commenced or if its operations have commenced, there has been no significant
revenues there from.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in hand and cash in time deposits,
certificates of deposit and all highly liquid debt instruments with original
maturities of three months or less. The Company had $2,857 and $1,674 of cash at
October 31, 2013 and July 31, 2013, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles of the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the year.
The more significant areas requiring the use of estimates include asset
impairment, stock-based compensation, and future income tax amounts. Management
bases its estimates on historical experience and on other assumptions considered
to be reasonable under the circumstances. However, actual results may differ
from the estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts payable and
accrued expenses, and amounts due to a related party. The carrying amounts of
these financial instruments approximate fair value due either to length of
maturity or interest rates that approximate prevailing rates unless otherwise
disclosed in these financial statements.
6
REVENUE RECOGNITION
The Company has yet to realize revenues from operations and is still in the
exploration stage. The Company will recognize revenue when delivery of goods or
completion of services has occurred provided there is persuasive evidence of an
agreement, acceptance has been approved by its customers, the fee is fixed or
determinable based on the completion of stated terms and conditions, and
collection of any related receivable is reasonably assured.
OIL AND GAS PROPERTIES
The Company uses the full cost method of accounting for oil and natural gas
properties. Under this method, all acquisition, exploration and development
costs, including certain payroll, asset retirement costs, other internal costs,
and interest incurred for the purpose of finding oil and natural gas reserves,
are capitalized. Internal costs that are capitalized are directly attributable
to acquisition, exploration and development activities and do not include costs
related to production, general corporate overhead or similar activities. Costs
associated with production and general corporate activities are expensed in the
period incurred. Proceeds from the sale of oil and natural gas properties are
applied to reduce the capitalized costs of oil and natural gas properties unless
the sale would significantly alter the relationship between capitalized costs
and proved reserves, in which case a gain or loss is recognized.
Capitalized costs associated with impaired properties and capitalized costs
related to properties having proved reserves, plus the estimated future
development costs, and asset retirement costs under ASC 410 "Asset Retirement
and Environmental Obligations", are amortized using the unit-of-production
method based on proved reserves. Capitalized costs of oil and natural gas
properties, net of accumulated amortization and deferred income taxes, are
limited to the total of estimated future net cash flows from proved oil and
natural gas reserves, discounted at ten percent, plus the cost of unevaluated
properties.
There are many factors, including global events that may influence the
production, processing, marketing and price of oil and natural gas. A reduction
in the valuation of oil and natural gas properties resulting from declining
prices or production could adversely impact depletion rates and capitalized cost
limitations. Capitalized costs associated with properties that have not been
evaluated through drilling or seismic analysis are excluded from the
unit-of-production amortization. Exclusions are adjusted annually based on
drilling results and interpretative analysis.
Sales of oil and natural gas properties are accounted for as adjustments to the
net full cost pool with no gain or loss recognized, unless the adjustment would
significantly alter the relationship between capitalized costs and proved
reserves. If it is determined that the relationship is significantly altered,
the corresponding gain or loss will be recognized in the statements of
operations.
Costs of oil and gas properties are amortized using the units of production
method.
CEILING TEST: Under the full cost method of accounting, the net book value of
oil and gas properties, less related deferred income taxes, may not exceed a
calculated "ceiling". The ceiling limitation is the estimated after-tax future
net cash flows from proved oil and gas reserves, discounted at 10 percent per
annum and adjusted for cash flow hedges. Estimated future net cash flows exclude
future cash outflows associated with settling accrued asset retirement
obligations.
The Company has adopted U.S. Securities and Exchange Commission ("SEC") Release
33-8995 and the amendments to ASC 932, "Extractive Industries - Oil and Gas"
(the Modernization Rules). Under the Modernization Rules, estimated future net
cash flows are calculated using end-of-period costs and an unweighted arithmetic
average of commodity prices in effect on the first day of each of the previous
12 months, held flat for the life of production, except where prices are defined
by contractual arrangements.
7
Any excess of the net book value of proved oil and gas properties, less related
deferred income taxes, over the ceiling is charged to expense and reflected as
additional depletion, depreciation and amortization expense ("DD&A") in the
accompanying statement of operations. Such limitations are tested quarterly. As
of October 31, 2013, capitalized costs did not exceed the ceiling limitation,
and no write-down was indicated.
IMPAIRMENT OF OIL AND GAS PROPERTIES
Unproved oil and gas properties are assessed at each reporting period for
impairment of value, and a loss is recognized at the time of the impairment by
providing an impairment allowance. An asset would be impaired if the
undiscounted cash flows were less than its carrying value. Impairments are
measured by the amount by which the carrying value exceeds its fair value.
Because the Company uses the successful efforts method, the Company assesses its
properties individually for impairment, instead of on an aggregate pool of
costs. Impairment of unproved properties is based on the facts and circumstances
surrounding each lease and is recognized based on management's evaluation.
Management's evaluation follows a two-step process where (1) recoverability of
the carrying value of the asset is reviewed to determine if there is sufficient
value recoverable to support the capitalized value at the report date; and, (2)
if assets fail the recoverability test, impairment testing is conducted,
including the evaluation of various criteria such as: prior history of
successful operations; production currently in place and/or future projected
cash flows (if any); reserve reports or evaluations from which management can
prepare future cash flow analyses; the Company's ability to monetize the
asset(s) under evaluation; and Management's intent regarding future development.
STOCK-BASED COMPENSATION
The Company accounts for employee stock-based compensation in accordance with
the guidance of FASB ASC Topic 718, COMPENSATION - STOCK COMPENSATION which
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based on their fair
values. The fair value of the equity instrument is charged directly to
compensation expense and credited to additional paid-in capital over the period
during which services are rendered. There has been no stock-based compensation
issued to employees.
The Company follows ASC Topic 505-50, formerly EITF 96-18, "ACCOUNTING FOR
EQUITY INSTRUMENTS THAT ARE ISSUED TO OTHER THAN EMPLOYEES FOR ACQUIRING, OR IN
CONJUNCTION WITH SELLING GOODS AND SERVICES," for stock options and warrants
issued to consultants and other non-employees. In accordance with ASC Topic
505-50, these stock options and warrants issued as compensation for services
provided to the Company are accounted for based upon the fair value of the
services provided or the estimated fair market value of the option or warrant,
whichever can be more clearly determined. There has been no stock-based
compensation issued to non-employees.
INCOME TAXES
The Company provides for income taxes using an asset and liability approach.
Deferred tax assets and liabilities are recorded based on the differences
between the financial statement and tax bases of assets and liabilities and the
tax rates in effect currently. Deferred tax assets are reduced by a valuation
allowance if, based on the weight of available evidence, it is more likely than
not that some or all of the deferred tax assets will not be realized. No
provision for income taxes is included in the statement due to its immaterial
amount, net of the allowance account, based on the likelihood of the Company to
utilize the loss carry-forward.
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
Basic income (loss) per share is calculated by dividing the Company's net loss
applicable to common shareholders by the weighted average number of common
shares during the period. Diluted earnings per share is calculated by dividing
the Company's net income available to common shareholders by the diluted
weighted average number of shares outstanding during the year. The diluted
weighted average number of shares outstanding is the basic weighted number of
shares adjusted for any potentially dilutive debt or equity. There are no such
common stock equivalents outstanding as of October 31, 2013.
8
RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position or cash flow.
NOTE 3 - DUE TO RELATED PARTIES
During the period, an officer advanced the Company $8,000 for operating
expenses. As of October 31, 2013 and July 31, 2013, the Company was obligated to
officers and a director, who are also stockholders, for non-interest bearing
demand loans with balances of $13,824 and 5,824, respectively. The Company plans
to pay the loans back as cash flows become available.
NOTE 4 - OIL AND NATURAL GAS PROPERTIES
On July 23, 2012, the Company purchased a lease from an unrelated third party
consisting of approximately 624 net acres in Lewis and Clark County, Montana for
a total purchase price of $15,000. In addition, annual rental payments of $937
are due to the State of Montana starting June 1, 2014 through June 5, 2022. The
Company has not incurred any exploration or development costs in connection with
this lease and, therefore, recorded an impairment loss in the amount of $15,000
as of July 31, 2013.
Minimum annual rental payments total $8,434 for the nine-year term. The lease
can be extended after June 5, 2022 so long as oil and gas in paying quantities
are produced from the land.
NOTE 5 - CAPITAL STOCK
The authorized capital of the Company is 100,000,000 common shares with a par
value of $0.0001 and 20,000,000 preferred shares with a par value of $0.0001.
During the period ended July 31, 2012, the Company issued 27,000,000 shares of
common stock at a price of approximately $0.001 per share for total cash
proceeds of $27,160.
During the year ended July 31, 2013, the Company issued 25,200,000 shares of
common stock at a price of approximately $0.0015 per share for total cash
proceeds of $37,800.
During the year ended July 31, 2013, a related party paid Company expenses in
the amount of $3,000 which were later forgiven and recorded as contributed
capital.
There were 52,200,000 shares of common stock issued and outstanding as of
October 31, 2013 and July 31, 2013. There were no shares of preferred stock
issued and outstanding as of October 31, 2013 and July 31, 2013.
NOTE 6 - INCOME TAXES
For the period ended October 31, 2013, the Company has incurred a net loss and,
therefore, has no tax liability. The net deferred tax asset generated by the
loss carry-forward has been fully reserved. The cumulative net operating loss
carry-forward is approximately $82,027 at October 31, 2013 and will expire
beginning in the year 2032.
The provision for Federal income tax consists of the following for the periods
ended October 31, 2013 and 2012:
2013 2012
-------- --------
Federal income tax benefit attributable to:
Current operations $ 1,196 $ 1,141
Less: valuation allowance (1,196) (1,141)
-------- --------
Net provision for Federal income taxes $ -- $ --
======== ========
9
The cumulative tax effect at the expected rate of 34% of significant items
comprising our net deferred tax amount is as follows as of October 31, 2013 and
July 31, 2013:
October 31, 2013 July 31, 2013
---------------- -------------
Deferred tax asset attributable to:
Net operating loss carryover $ 27,889 $ 26,693
Less: valuation allowance (27,889) (26,693)
-------- --------
Net deferred tax asset $ -- $ --
======== ========
Due to the change in ownership provisions of the Tax Reform Act of 1986, net
operating loss carry-forwards of $82,027 for Federal income tax reporting
purposes are subject to annual limitations. Should a change in ownership occur
net operating loss carry-forwards may be limited as to use in future years.
NOTE 7 - ENVIRONMENTAL AND OTHER CONTINGENCIES
The Company's operations and earnings may be affected by various forms of
governmental action in the United States. Examples of such governmental action
include, but are by no means limited to: tax increases and retroactive tax
claims; royalty and revenue sharing increases; import and export controls; price
controls; currency controls; allocation of supplies of crude oil and petroleum
products and other goods; expropriation of property; restrictions and
preferences affecting the issuance of oil and gas or mineral leases;
restrictions on drilling and/or production; laws and regulations intended for
the promotion of safety and the protection and/or remediation of the
environment; governmental support for other forms of energy; and laws and
regulations affecting the Company's relationships with employees, suppliers,
customers, stockholders and others. Because governmental actions are often
motivated by political considerations and may be taken without full
consideration of their consequences, and may be taken in response to actions of
other governments, it is not practical to attempt to predict the likelihood of
such actions, the form the actions may take or the effect such actions may have
on the Company.
Companies in the oil and gas industry are subject to numerous federal, state,
and local regulations dealing with the environment. Violation of federal or
state environmental laws, regulations and permits can result in the imposition
of significant civil and criminal penalties, injunctions and construction bans
or delays. A discharge of hazardous substances into the environment could, to
the extent such event is not insured, subject the Company to substantial
expense, including both the cost to comply with applicable regulations and
claims by neighboring landowners and other third parties for any personal injury
and property damage that might result.
The Company currently leases a property at which hazardous substances could have
been or are being handled. In addition, many of these properties have been
operated by third parties whose treatment and disposal or release of
hydrocarbons or other wastes were not under the Company's control. Under
existing laws, the Company could be required to remove or remediate previously
disposed wastes (including wastes disposed of or released by prior owners or
operators), to clean up contaminated property (including contaminated
groundwater) or to perform remedial plugging operations to prevent future
contamination. The Company is investigating the extent of any such liability and
the availability of applicable defenses and believes the costs related to these
sites will not have a material adverse effect on the Company's net income,
financial condition or liquidity in a future period.
The Company's liability for remedial obligations includes certain amounts that
are based on anticipated regulatory approval for proposed remediation of former
refinery waste sites. Although regulatory authorities may require more costly
alternatives than the proposed processes, the cost of such potential alternative
processes is not expected to be a material amount. Certain environmental
expenditures are likely to be recovered by the Company from other sources,
primarily environmental funds maintained by certain states. Since no assurance
can be given that future recoveries from other sources will occur, the Company
has not recorded a benefit for likely recoveries.
10
There is the possibility that environmental expenditures could be required at
currently unidentified sites, and new or revised regulations could require
additional expenditures at known sites. However, based on information currently
available to the Company, the amount of future remediation costs incurred at
known or currently unidentified sites is not expected to have a material adverse
effect on the Company's future net income, cash flows or liquidity. The Company
has recorded $0 for its estimated asset retirement obligations as of October 31,
2013.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company entered into an informal agreement to rent office space on a
month-to-month basis with an unrelated party for $300/month to begin on January
1, 2013. The Company began sharing the office space with other tenants on June
1, 2013, also on a month-to-month basis. These tenants are subleasing the space
from the Company for $300/month and for the period ended October 31, 2013, the
Company recognized $900 of other income related to the three months of office
sharing.
NOTE 9 - GOING CONCERN
The financial statements have been prepared on a going concern basis which
assumes the Company will be able to realize its assets and discharge its
liabilities in the normal course of business for the foreseeable future. The
Company has a working capital deficit and has incurred losses since inception
resulting in an accumulated deficit of $82,027 as of October 31, 2013. Further
losses are anticipated in the development of the business, raising substantial
doubt about the Company's ability to continue as a going concern.
The ability to continue as a going concern is dependent upon the Company
generating profitable operations in the future 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 intends to finance operating
costs over the next twelve months with existing cash on hand and loans from
directors and/or private placement of common stock.
NOTE 10 - SUBSEQUENT EVENTS
In accordance with ASC 855-10, the Company has analyzed its operations
subsequent to October 31, 2013 to the date these financial statements were
issued, and has determined that it does not have any material subsequent events
to disclose in these financial statements.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
Except for historical information, this report contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Such forward-looking
statements involve risks and uncertainties, including, among other things,
statements regarding our business strategy, future revenues and anticipated
costs and expenses. Such forward-looking statements include, among others, those
statements including the words "expects," "anticipates," "intends," "believes"
and similar language. Our actual results may differ significantly from those
projected in the forward-looking statements. Factors that might cause or
contribute to such differences include, but are not limited to, those discussed
herein as well as in the "Description of Business - Risk Factors" section in our
Annual Report on Form 10-K, as filed on November 13, 2013. You should carefully
review the risks described in our Annual Report and in other documents we file
from time to time with the Securities and Exchange Commission. You are cautioned
not to place undue reliance on the forward-looking statements, which speak only
as of the date of this report. We undertake no obligation to publicly release
any revisions to the forward-looking statements or reflect events or
circumstances after the date of this document.
Although we believe that the expectations reflected in these forward-looking
statements are based on reasonable assumptions, there are a number of risks and
uncertainties that could cause actual results to differ materially from such
forward-looking statements.
All references in this Form 10-Q to the "Company," "Freedom Petroleum," "we,"
"us," or "our" are to Freedom Petroleum, Inc.
Our unaudited financial statements are stated in United States Dollars and are
prepared in accordance with United States Generally Accepted Accounting
Principles.
RESULTS OF OPERATIONS
Our financial statements have been prepared assuming that we will continue as a
going concern and, accordingly, do not include adjustments relating to the
recoverability and realization of assets and classification of liabilities that
might be necessary should we be unable to continue in operation. We expect we
will require additional capital to meet our long term operating requirements. We
expect to raise additional capital through, among other things, the sale of
equity or debt securities.
We have generated no revenues and have incurred $82,027 in expenses since June
13, 2012 (inception) through October 31, 2013.
The following table provides selected financial data about our company as of
October 31, 2013 and July 31, 2013.
Balance Sheet Date October 31, 2013 July 31, 2013
------------------ ---------------- -------------
Cash $ 2,857 $ 1,674
Total Assets $ 2,857 $ 1,674
Total Liabilities $ 16,924 $ 12,224
Stockholders' Deficit $ 14,067 $ 10,550
12
PLAN OF OPERATION
We are a start-up, exploration-stage company and have not yet generated or
realized any revenues from our business operations.
Our auditors have issued a going concern opinion on our audited financial
statements for the year ended July 31, 2013. This means that there is
substantial doubt that we can continue as an on-going business for the next
twelve months unless we obtain additional capital to pay our bills. This is
because we have not generated any revenues and no revenues are anticipated until
we begin removing and selling minerals. There is no assurance we will ever reach
this point. Accordingly, we must raise cash from sources from other sources. Our
only other source for cash at this time is investments by others. We must raise
cash to implement our project and stay in business. As of October 31, 2013, our
company had $2,857 in cash on hand.
We have acquired 100%, subject to an overriding royalty of 3.3333% of 8/8ths of
all the oil, gas and other hydrocarbons produced, saved and marketed, of a 624
net acre Bakken shale lease in Lewis and Clark County, Montana, known as the
Bear River Prospect. The Bear River Prospect is specifically at Township 15
North, Range 4 West and is legally described as Section 32: Lots 1 through 8,
E2.
On July 23, 2012 we entered into, and on August 2, 2012 we closed on a Lease
Purchase Agreement with Summit West Oil, LLC pursuant to which we acquired the
Bear River Prospect for $15,000. The lease is subject to a 3.3333% royalty owed
to Summit West Oil, LLC, as well as a 16.67% royalty owed to the government of
Montana over all oil and gas produced from the property.
The lease is for a ten year term with a commencement date of June 5, 2012. The
ability to renew the lease is to be renegotiated before or upon termination if
Freedom Petroleum Inc. should choose to renew the leasing rights. The lease is
extended automatically upon the ignition of oil or gas production from the
property.
If we are unable to complete any phase of our exploration program because we do
not have sufficient capital, we will cease operations until we raise more money.
If we cannot or do not raise additional capital, we will cease operations. If we
cease operations, we do not have any additional plans at this time.
LIMITED OPERATING HISTORY; NEED FOR ADDITIONAL CAPITAL
There is no historical financial information about us upon which to base an
evaluation of our performance. We are an exploration stage corporation and have
not generated any revenues from operations. We cannot guarantee we will be
successful in our business operations. Our business is subject to risks inherent
in the establishment of a new business enterprise, including limited capital
resources, possible delays in the exploration of our properties, and possible
cost overruns due to price and cost increases in services.
To become profitable and competitive, we must conduct the research and
exploration of our properties before we start production of any minerals we may
find. We sought equity financing to provide for the capital required to
implement our research and exploration phases. We do not believe we have
sufficient funds to operate our business for the 12 months.
We have no assurance that future financing will be available to us on acceptable
terms. If financing is not available on satisfactory terms, we may be unable to
continue, develop or expand our operations. Equity financing could result in
additional dilution to existing shareholders.
We are currently dependent on our two officers, one of which is our sole
director, for providing the necessary capital to operate. As of October 31,
2013, our officers have advanced a total of $13,824.
13
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
October 31, July 31,
2013 2013
-------- --------
Current Assets $ 2,857 $ 1,674
Current Liabilities $ 16,924 $ 12,224
-------- --------
Working Capital Deficiency $ 14,067 $ 10,550
======== ========
CASH FLOWS
October 31, October 31,
2013 2012
-------- --------
Cash Flows from (used in) Operating Activities $ (6,817) $(23,005)
Cash Flows from (used in) Investing Activities $ -- $ --
Cash Flows from (used in) Financing Activities $ 8,000 $ --
-------- --------
Net Increase (decrease) in Cash During Period $ 1,183 $(23,005)
======== ========
As at October 31, 2013, our company's cash balance was $2,857 compared to $1,674
as at July 31, 2013 and our total assets at October 31, 2013 were $2,857
compared with $1,674 as at July 31, 2013. The increase in cash was primarily due
to a loan from a company Officer for $8,000. The increase in assets is
attributable to the increase in cash.
As at October 31, 2013, our company had total liabilities of $16,924 compared
with total liabilities of $12,224 as at July 31, 2013. The increase in total
liabilities was primarily attributed to an increase in related party debt of
$8,000 during the period.
As at October 31, 2013, our company had a working capital deficiency of $14,067
compared with working capital deficiency of $10,550 as at July 31, 2013. The
increase in working capital deficiency was primarily attributed the increase in
funds from a related party at October 31, 2013.
CASH FLOW FROM OPERATING ACTIVITIES
During the period ended October 31, 2013, cash used in operating activities was
$6,817 compared to cash used in operating activities of $23,005 during the
period ended Ocotber 31, 2012. The decrease in cash used in operating activities
was attributed to the use of cash for reducing accounts payable in 2012 by
$19,650 as compared to $3,3000 paid for the same period in 2013.
CASH FLOW FROM INVESTING ACTIVITIES
During the period ended October 31, 2013 and 2012, our company used $Nil cash
for investing activities. From inception (June 13, 2012) through October 31,
2013 $15,000 was spent for acquistion of oil and gas properties.
CASH FLOW FROM FINANCING ACTIVITIES
During the period ended October 31, 2013, cash provided by financing activities
was $8,000 compared to $nil for the same period in 2012. The increase in 2013 is
attributatble to $8,000 provided by an officer of the Company. From inception
(June 13, 2012) through October 31, 2013 cash flows from financing activities
was $81,784, $64,960 from the issuance of common stock and $16,824 from Officers
of the Company.
14
To meet our need for cash we raised $37,800 from the sale of 25,200,000
registered shares pursuant to our S-1 Registration Statement filed with the SEC,
which became effective on December 7, 2012.
Our two officers, one who is also our sole director have verbally agreed to
advance funds, on an as-needed basis, to assist in start-up operations, and to
continue limited operations if sufficient funds are not raised from other
sources. The officers have both proposed the verbal commitment to loan in order
to ensure that our company would be able to continue its operations in the event
sufficient funds are not available. While they have agreed to advance the funds,
the agreement is verbal. Because there is no written agreement to loan funds and
the verbal agreement may be withdrawn at any time, the verbal agreement is
unenforceable. To date, both of our officers advanced funds to our company. As
of October 31, 2013, they have advanced $16,824 and forgiven $3,000, for total
owing of $13,824.
We received our initial funding of $27,160 through the sale of common stock to
Thomas Hynes, who purchased 17,000,000 shares of common stock at $0.001 on July
30, 2012 for $17,000, and, 10,000,000 shares to Nina Bijedic on July 31, 2012
for a $10,000. During the year ended July 31, 2013, we issued 25,200,000 shares
of common stock at $0.0015, resulting in total shares issued and outstanding as
of October 31, 2013 and July 31, 2013 of 52,200,000. From inception until the
date of this filing, we have had limited operating activities. Our financial
statements from inception (June 13, 2012) through the period ended October 31,
2013, reported no revenues and a net loss of $82,027.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any 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 is material to investors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a "smaller reporting company", we are not required to provide the information
required by this Item.
ITEM 4. CONTROL AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of October 31, 2013, management assessed the effectiveness of our internal
control over financial reporting based on the criteria for effective internal
control over financial reporting established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO") and SEC guidance on conducting such assessments. Based on
that evaluation, they concluded that, during the period covered by this report,
such internal controls and procedures were not effective to detect the
inappropriate application of US GAAP rules as more fully described below. This
was due to deficiencies that existed in the design or operation of our internal
controls over financial reporting that adversely affected our internal controls
and that may be considered to be material weaknesses.
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: (1) lack of a functioning audit committee, (2)
lack of a majority of outside directors on our board of directors, resulting in
ineffective oversight in the establishment and monitoring of required internal
controls and procedures; (3) inadequate segregation of duties consistent with
control objectives; and (4) management dominated by a single individual without
adequate compensating controls. The aforementioned material weaknesses were
identified by our Chief Executive and Financial Officer in connection with the
review of our financial statements as of October 31, 2013.
Management believes that the material weaknesses set forth above did not have an
effect on our financial results. However, management believes that the lack of a
functioning audit committee and the lack of a majority of outside directors on
our board of directors 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.
15
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal control over financial reporting that
occurred during the quarter ended October 31, 2013, that have materially
affected or are reasonably likely to materially affect our internal control over
financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We know of no material, existing or pending legal proceedings against us, nor
are we involved as a plaintiff in any material proceeding or pending litigation.
There are no proceedings in which any of our directors, officers or affiliates,
or any registered or beneficial shareholder, is an adverse party or has a
material interest adverse to our company.
ITEM 1A. RISK FACTORS.
As a "smaller reporting company", we are not required to provide the information
required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
We did not issue unregistered equity securities during the quarter ended October
31, 2013.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
16
ITEM 6. EXHIBITS.
Exhibit
Number Description of Exhibit
------ ----------------------
(3) ARTICLES OF INCORPORATION AND BYLAWS
3.1 Articles of Incorporation (incorporated by reference to our
Registration Statement on Form S-1 filed on September 24, 2012)
3.2 Bylaws (incorporated by reference to our Registration Statement on Form
S-1 filed on September 24, 2012)
(10) MATERIAL CONTRACTS
10.1 Oil and Gas Lease Purchase Agreement dated July 23, 2012 between our
Company and Summit West Oil, LLC (incorporated by reference to our
Registration Statement on Form S-1 filed on September 24, 2102)
(31) RULE 13A-14(A) / 15D-14(A) CERTIFICATIONS
31.1* Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer and
Chief Financial Officer.
(32) SECTION 1350 CERTIFICATIONS
32.1* Rule 1350 Certification of Chief Executive Officer and Chief Financial
Officer.
101 INTERACTIVE DATA FILE
101** Interactive Data File (Form 10-Q for the quarter ended October 31, 2013
furnished in XBRL).
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
----------
* Filed herewith.
** Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the
Interactive Data Files on Exhibit 101 hereto are deemed not filed or part
of a registration statement or prospectus for purposes of Sections 11 or 12
of the Securities Act of 1933, are deemed not filed for purposes of Section
18 of the Securities and Exchange Act of 1934, and otherwise are not
subject to liability under these sections.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FREEDOM PETROLEUM INC.
(Registrant)
Dated: December 16, 2013 /s/ Thomas Hynes
--------------------------------------
Thomas Hynes
President, Chief Executive Officer,
Chief Financial Officer, Treasurer,
and Director
(Principal Executive Officer and
Financial and Accounting Officer)
18