UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-K
 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended July 31, 2010

 

o   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: 000-49993
 

FORCE FUELS, INC.

(Name of Small Business Issuer in its Charter)

 

Nevada		56-2284320
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1503 South Coast Drive, Ste. 206 Costa Mesa CA 92626		90265
(Address of principal Executive Offices)		(Zip Code)

 

Issuer's Telephone Number: 949 783 6723

  

(Former name, former address and former fiscal year if changed since last report)
  

Securities registered under Section 12(b) of the Act:  None

Securities registered under Section 12(g) of the Act: Common Stock, par value $.001 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes  o    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) for the Act.
Yes  o    No  x

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  o

Indicate by check mark if disclosure of delinquent filers pursuant  to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein  and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10.
o

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. 

	Large accelerated filer   o		Accelerated filer   o
	Non-accelerated filer   o		Smaller reporting company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
Yes  o    No  x

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed fiscal year was $1,728,438. 

The number of shares outstanding of each of the Registrant's classes of common stock, as of December 22, 2010 is 7,841,875, all of one class, $.001 par value per share, of which 4,841,875 were held by non-affiliates of the registrant.

*Affiliates for the purpose of this item refers to the registrant's officers and directors and/or any persons or firms (excluding those brokerage firms and/or clearing houses and/or depository companies holding registrant's securities as record holders only for their respective clienteles' beneficial interest) owning 5% or more of the registrant's common stock, both of record and beneficially.

ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS

Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.
Yes  o    No  o
 

DOCUMENTS INCORPORATED BY REFERENCE

The following documents are herewith incorporated by reference:
 
Transitional Small Business Disclosure Format 
Yes  o    No  x

 

 

FORCE FUELS, INC.
 

TABLE OF CONTENTS
 

		PAGE
PART I.
Item 1.	Business	1
Item 2.	Properties	7
Item 3.	Legal Proceedings	7
Item 4.	Submission of Matters to a Vote of Security Holders	7
PART II.
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities	8
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 8.	Financial Statements (see pages F-2 through F-4)
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	11
Item 9A(T).	Controls and Procedures	12
Item 9B.	Other Information	12
PART III.
Item 10.	Directors, Executive Officers and Corporate Governance	13
Item 11.	Executive Compensation	15
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	17
Item 13.	Certain Relationships and Related Transactions, and Director Independence	18
Item 14.	Principal Accounting  Fees and Services	18
Item 15.	Exhibits, Financial Statement Schedules	19
Financial Statements		F-1
Signature Page		15
Exhibit Index		16

 PART I 

Item 1 - BUSINESS

Corporate History

Force Fuels, Inc. was originally incorporated in the State of Nevada on July 15, 2002.  Our name was changed from DSE Fishman, Inc. on May 13, 2008.  Unless the context otherwise requires, the "Company", "Force Fuels", “we”, “our”, “ours”, and “us” refer to Force Fuels, Inc. and its wholly-owned subsidiary Great American Coffee Company, Inc.

Assignment and Contribution Agreement between the Company and ICE Conversions, Inc.

On July 31, 2008 we entered into an assignment and contribution agreement (“Assignment and Contribution Agreement”) with Lawrence Weisdorn and ICE Conversions, Inc. to operate a business engaged in the development, manufacture and marketing of electric drive systems for installation in short-haul commercial trucks.  The transactions contemplated by the Assignment and Contribution Agreement include:

(a) The contribution, transfer and license of certain assets and intellectual property rights of  ICE to the Company;

(b) The grant of 1,000,000 shares of Common Stock to ICE;  by subsequent agreement 600,000 of these shares were returned,  to the Company,  for cancelation, on December 9, 2009.

(c) Confirmation of the previous grant of 2,500,000 shares of Common Stock to Lawrence Weisdorn pursuant to a consulting agreement; by subsequent agreement these shares were returned on, August 31, 2009, for cancelation.

(d) Cash payment of $400,000 from the Company to ICE, made payable as follows: 100,000 on or before March 15, 2009 and $300,000 on or before June 15, 2009.

(e) on January 30, 2009 ICE agreed to extend the timeline for the $400,000 cash payment to allow Force Fuels to make 8 separate installment payments, each in the amount of $50,000, due on or before the last day of each quarter of Force Fuel’s fiscal year, commencing with the first installment due on or before April 30, 2010 and the eighth and final payment due on or before January 31, 2012.

The Assignment and Contribution Agreement replaced the Joint Venture Agreement dated May 12, 2008.  Five hundred thousand (500,000) of the 1,500,000 shares previously issued to ICE were to be cancelled on July 31, 2008, pursuant to the terms of the Assignment and Contribution Agreement.

In Junel 2010, the agreement was amended effective April 2010.  By virtue of that amendment, the company returned to ICE all of the intellectual property rights described above and received, in exchange, intellectual property rights for the development of a hydrogen/electric hybrid automobile.  For this non-monetary exchange of assets, the fair value of neither the asset received nor the assets relinquished is determinable within reasonable limits and hence, the new asset has been recorded at the book value of the relinquished asset.  In addition, ICE cancelled the $400,000 debt owing to ICE for the acquisition of the above referenced intellectual property rights.

In the first half of the year, we began expanding our activities in other energy-related fields with the intention of developing its presence in the traditional and alternative energy fields. The first step toward the implementation of our strategy involved the acquisition of 13 developed oil leases in Southern Kansas through the signing of a purchase agreement with PEMCO, an Oklahoma Oil Field operator.  In the last few months, the Company has been finalizing financing, building a technical infrastructure and developing a plan for the refurbishing and development of the oil leases.

Business Description

As the strategic importance of national oil reserves becomes increasingly evident, the full exploitation of existing reserves and low yield wells has come under the spotlight. In the United States, one in six barrels of oil produced comes from a marginal well. Such wells are defined as producing less than 10 barrels of crude per day. In the U.S., marginal wells account for over 80% of all active wells. As new extraction technologies mature and become economically feasible for use on marginal wells, the potential value of these untapped resources increases. In addition, recent economic turmoil and an aging population of independent oil producers has created a convergence of events that, together with projected oil prices increasing, represent an unique opportunity for dynamic new entrants to the industry. 

For these reasons, as of the date of this filing the company intends to move its primary focus to property acquisition, exploration, and development activities related to oil, gas and electrical production. These energy-based activities include traditional hydrocarbon-based oil and gas development, as well as “green” or “alternative” energy, which includes solar and wind electrical generation.

In the oil and gas field, the Company will focus on:

1)     The purchase of marginally producing shallow oil wells, which are relatively inexpensive to operate and can be optimized with existing technologies;

2)     The purchase of leases with potential for additional drilling in proven producing areas; and

3)     The acquisition of in-house know-how to further optimize production through stimulation, refurbishing and site optimization.

The strategy of the Company is to invest principally in the acquisition or installation of energy-based assets that can contribute immediately and substantially to cash flow through sales to local energy companies, thus only requiring external or government financing for subsequent acquisitions and not for operating expenses.

In the short term, the Company will focus on maximizing revenue from its recent acquisition of over 2,600 acres of oil producing land leases with 49 oil strippers and 5 natural gas sites located in southern Kansas.

Subsequently, in the field of electrical energy production, the Company will focus solely on the exploitation of proven and established technologies that can generate a positive return on investment and tax benefits applicable to green energy and oil revenues. While naturally taking full advantage of current government assistance and incentives, placing a significant premium on the economic self-sustainability of all our projects and how new technologies and policies may affect us.

The company intends to continue to leverage its Intellectual Property assets through further development, expansion and marketing of the technology licensed from ICE Conversions, Inc. This development will be implemented through the creation of a fully owned subsidiary.

This drive train technology consists of a proprietary, zero emission hydrogen fuel cell/electric battery hybrid drive system. and relies on hydrogen fuel cells to produce electricity and acts as a range extender for electric drive vehicles. The Company is currently in the process of selecting a manufacturer to build the first prototypes. The Company intends to combine components purchased from various suppliers and partner those items with its proprietary technology and integrate all of the parts into complete electric drive vehicles. 

Industry Overview

Energy Sector

According to government forecast, the price range, in 2007 dollars, for crude oil for the next 10 years will remain in the range between $80 and $115 per barrel.¹ US crude oil production in 2008 was 4,950,000 barrels per day. 21% of electrical energy generated in the US in 2007 was from natural gas. 52% of US households are heated with natural gas. The majority of hydrogen produced in the United States is through reforming of natural gas.

Status of Oil Reserves in the United States

In 2007, the United States had 2% more proven reserves than in 2006.² During the last 10 years, new yearly proven reserves have compensated for 96% of total oil production³ (thus not effectively reducing total available and proven oil reserves significantly).

Opportunities for Entry in the sector

A large number of oil and gas wells in the United States are owned by small producers and individuals. The aging of the owner population, the current economic crisis and recent improvements in extracting and stimulation technologies are providing a unique opportunity:

Poorly producing wells and smaller properties often are run without access to technical expertise and are not maintained correctly. Often, production can be increased simply by a small investment in maintenance and updated equipment.

Small property owners looking to “cash out” are too small for large operators.

Producers do not have access to funds for production optimization like stimulation or well depth modification.

Down spacing. Several locations are candidates for higher well densities and increased production, which, combined with a drastic drop in drilling and pumping equipment costs, make established reserves development desirable.

New low cost technologies applicable to low/non-producing small plots. Recent improvement in technologies, once difficult to control, like nitrogen stimulation or, too expensive to implement on a small

Hydrogen/Electric Vehicles

The emerging fuel cell and hydrogen vehicle industry offers a technological option to increasing worldwide energy costs coupled with, the long-term availability of petroleum reserves and environmental concerns.

Fuel cell, bio-diesel, electric and hydrogen hybrid vehicles, as a result of higher efficiency, reduced noise and lower tailpipe emissions, have emerged as a potential alternative to existing conventional internal combustion engine vehicles. Fuel cell industry participants are currently targeting the transportation and hydrogen refueling infrastructure markets. We believe that our hydrogen and hybrid enabling products of fuel storage, fuel delivery, battery and electronic control systems along with our vehicle-level system integration experience can be effectively applied in these markets. 

Fuel cell and hydrogen-powered hybrid vehicles are being designed to provide clean, quiet power for a variety of applications in transportation, fleet, industrial, and military vehicles. In the automotive market, each of DaimlerChrysler, Ford, General Motors, Honda, Hyundai, Nissan, and Toyota Motor Corporation have unveiled fuel cell vehicles. General Motors is anticipated to begin close to the end of the decade mass production of fuel cell vehicles; DaimlerChrysler is anticipated to begin by 2012 to 2015; and Toyota is anticipated to begin by 2015. A new study from Pike Research has emerged suggesting that fuel cell vehicles are ripe for an explosive increase in volume.

---

¹ EIA 2009 yearly forecast of crude oil prices. http://www.eia.doe.gov/oiaf/forecasting.html
² DOE report on current oil and gas reserves 2008

Pike predicts fuel cell vehicles (FCVs) will reach 670,000 in annual sales volume by 2020. Though the predicted volume is much higher than we anticipated, the study suggests that automakers will adopt fuel cell technology at a rapid rate over the next ten years, leading to high annual output. Of the 670,000 in annual sales, the U.S. will lead the way with 134,049 FCVs, China will hold a close second at 129,241 and Germany will round out the top three with 126,783 annual sales of FCVs.

We believe, as this technology of the future is being commercialized, this program has helped expedite the expansion of a hydrogen infrastructure and bridge the technology gap between conventional gasoline vehicles and fuel cell vehicles.

1) Intellectual Property

The emerging fuel cell and hydrogen vehicle industry offers a technological option to increasing worldwide energy costs coupled with, the long-term availability of petroleum reserves and environmental concerns. Fuel cell, bio-diesel, electric and hydrogen hybrid vehicles, as a result of higher efficiency, reduced noise and lower tailpipe emissions, have emerged as a potential alternative to existing conventional internal combustion engine vehicles. Fuel cell industry participants are currently targeting the transportation and hydrogen refueling infrastructure markets. We believe that our hydrogen and hybrid enabling products of fuel storage, fuel delivery, battery and electronic control systems along with our vehicle-level system integration experience can be effectively applied in these markets.

Fuel cell and hydrogen-powered hybrid vehicles are being designed to provide clean, quiet power for a variety of applications in transportation, fleet, industrial, and military vehicles. In the automotive market, each of DaimlerChrysler, Ford, General Motors, Honda, Hyundai, Nissan, and Toyota Motor Corporation have unveiled fuel cell vehicles. General Motors is anticipated to begin close to the end of the decade mass production of fuel cell vehicles; DaimlerChrysler is anticipated to begin by 2012 to 2015; and Toyota is anticipated to begin by 2015. A new study from Pike Research has emerged suggesting that fuel cell vehicles are ripe for an explosive increase in volume. Pike predicts fuel cell vehicles (FCVs) will reach 670,000 in annual sales volume by 2020. Though the predicted volume is much higher than we anticipated, the study suggests that automakers will adopt fuel cell technology at a rapid rate over the next ten years, leading to high annual output. Of the 670,000 in annual sales, the U.S. will lead the way with 134,049 FCVs, China will hold a close second at 129,241 and Germany will round out the top three with 126,783 annual sales of FCVs.

Hydrogen-powered hybrid and other hydrogen vehicles can begin to drive the demand for the refueling infrastructure of this clean fuel, a critical component to fuel cell vehicle commercialization. The South Coast Air Quality Management District located in Diamond Bar, Southern California, is positioning the Los Angeles, Orange and Riverside Counties to be ready for fuel cell vehicles by initiating a hydrogen-powered hybrid program. In January 2006, 30 hydrogen hybrid Toyota Priuses were obtained by fleets located in Southern California. The objective of this effort, funded by the South Coast Air Quality Management District, was to stimulate the early demand for hydrogen, expedite the development of infrastructure, and provide a bridge to fuel cell vehicles. We believe, as this technology of the future is being commercialized, this program has helped expedite the expansion of a hydrogen infrastructure and bridge the technology gap between conventional gasoline vehicles and fuel cell vehicles. We, also, believe that this can be the model for other markets where fuel cell vehicles will emerge, such as North America, Europe and Asia-Pacific. As such, we intend to initially focus our marketing efforts of hydrogen hybrid systems in Southern California. 

As the strategic importance of national oil reserves becomes increasingly evident, the full exploitation of existing reserves and low yield wells have come under the spotlight.  In the United States, one in six barrels of oil produced comes from a marginal well. Such wells are defined as producing less than 10 barrels of crude per day.  In the U.S., marginal wells account for over 80% of all active wells. As new extraction technologies mature and become economically feasible for use on marginal wells, the potential value of these untapped resources increases.  In addition, recent economic turmoil and an aging population of independent oil producers has created a convergence of events that, together with  projected oil prices well over $70 per barrel, represent an unique opportunity for dynamic new entrants to the industry. For these reasons, the company remains confident that its long term plan to enter the traditional and alternative energy arenas will meet with significant success.

Business Strategy

1) Intellectual Property

We intend to utilize the intellectual property to establish a position as a provider of high performance zero emission sports cars. We will leverage our alternative fuel, electronic control, electric and hybrid electric drive systems, and hydrogen handling and refueling capabilities and experience to select off-the-shelf components for assembly into a variety of hybrid energy vehicles. We will diversify our customer base for these vehicles to include OEMs, OEM dealer networks and other strategic alliance and distribution partners.

Products

1) Intellectual Property

We will focus on marketing zero-emission Vehicles to a variety of alternate energy and green minded individuals, OEM dealer networks, as well as end-user consumers. We are uniquely positioned to leverage our knowledge and experience about alternative fuels, electronic controls, hydrogen and hybrid hydrogen/electric drive systems, and hydrogen handling and refueling. We intend to become part of the truly pollution free or reduced pollution solution and alternative energy conversion systems solution for today’s drivers.

At the present time we are completing a working, proof of concept prototype vehicle suitable for testing and demonstration of performance. The production version concept body pictured below will need to be engineered for DOT crash testing. The body will have to be built and the interior designed. At the present time, third party products exist for the various components that Cheetah intends to install in the production version concept vehicle. We have not made public announcements regarding the availability of our new vehicle. We believe acquisition of supplies, costs of assembly and other costs related to the production of the Vehicles will require the investment of a material amount of our current and future assets. We intend to become a one stop solution to provide a truly pollution free or reduced pollution, alternative energy conversion solution for today’s drivers. To accomplish this we will be producing and marketing the following alternative energies vehicles:

Cheetah EV (Electric Vehicle)

We are designing and will be marketing a battery only, 400 HP, 1,400 FT/LB of torque, zero emission electric Supercar. This plugin battery electric drive system eliminates dependence on gasoline, and eliminates pollution associated with burning fossil fuels. As with other battery only electric vehicles the Cheetah EV will have a limited driving range.

Cheetah HEV (Hydrogen Electric Vehicle)

We will also offer the 400 HP, 1,400 FT/LB of torque, zero emission Supercar powered by the proprietary Cheetah hydrogen/electric hybrid drive system. Hydrogen fuel cells produce electricity on demand and as such are used as range extenders for electric vehicles. All of the performance attributes of the vehicle are determined by the battery dominant power train. The addition of this optional hydrogen/electric hybrid drive system is expected to provide a driving range of greater than 300 miles. This hydrogen/electric hybrid drive system also eliminates dependence on gasoline, and eliminates pollution associated with burning fossil fuels.

Competition

1) Intellectual Property

In the fuel cell and hydrogen industry, our expertise will be in alternative fuel high performance vehicles. We do not manufacture fuel cells or fuel reformers or the parts we will use in our vehicles. We may face competition from traditional automotive component suppliers, such as Bosch, Delphi, Siemens, and Visteon, and from motor vehicle OEMs that develop alternative fuel systems internally. Also, Tesla, Fisker and Quantum are now the leading providers of alternative fuel technologies to the automotive industry and have already established a significant marketplace presence.

We believe that our competitors, such as Tesla, Fisker and Quantum, have technology leadership and integration expertise derived from many years of experience with vehicle development and assembly programs whereas we are a recently formed company with a limited track-record. Our foreseeable competitors typically focus on proprietary components, whereas we will focus on integrating preexisting components into the “best-available composite vehicle”. Also, some offer complete packaged fuel systems based upon their own advanced technologies, including gaseous fuel storage, fuel metering and electronic controls.

Employees

The Company currently has one (1) full-time management employee, and several consultants that provide services on an as needed basis.

Subsidiaries

Great American Coffee Company remains an inactive wholly-owned subsidiary with no current operations.

Item 1A – RISK FACTORS

Risk factors related to concentration of sales.

Our future financial condition and results of operations will depend upon prices received for our oil and natural gas as well as the costs of finding, acquiring, developing and producing reserves. Prices for oil and natural gas are subject to fluctuations in response to changes in supply, market uncertainty, and a variety of other factors beyond our control. These factors include worldwide political instability, especially in the Middle East, the foreign supply of oil and natural gas, the price of foreign imports, the level of consumer product demand and the price and availability of alternative fuels.

No established market for our automotive technology.

There is no established market for our automotive technology.  This technology has never been sold before and the risk exists for the establishment of a new market.  We are counting on a new market developing and that the new market will accept our technology as opposed to other alternatives.  The new market may not develop or may not develop in time to allow us to continue our operations.

Our lack of operating history.

We had no operations prior to the transfer to the Company on July 31, 2008 of assets pursuant to the Assignment and Contribution Agreement with ICE, and the acquisition on April 23, 2010 of the business of extracting oil and natural gas from existing oil wells on 2600 acres in the state of Kansas.   We have insufficient operating history upon which an evaluation of our future performance and prospects can be made.

Our business plan is unproven.

We have a limited operating history, with no track record to determine if our planned business will be financially viable or successful.  Our projected revenues from our business may fall short of our targeted goals and our profit margins may likewise not be achieved.  Until we are actually in the marketplace for a demonstrable period of time, it is impossible to determine if our business strategies will be successful.

We will need financing which may not be available.

We have not established a source of equity or debt financing and will require such financing to establish our business and implement our strategic plan.  If we are unable to obtain financing or if the financing we do obtain is insufficient to cover any operating losses we may incur, we may substantially curtail or terminate our operations or seek other business opportunities through strategic alliances, acquisitions or other arrangements that may dilute the interests of existing stockholders.

Shareholders may be diluted significantly through our efforts to obtain financing and satisfy obligations.

We have no committed source of financing.  Wherever possible, we will attempt to use non-cash consideration to satisfy obligations.  In many instances, we believe that the non-cash consideration will consist of shares of our stock.  In addition, if a trading market develops for our common stock, we may attempt to raise capital by selling shares of our common stock, possibly at a discount to market.  These actions will result in dilution of the ownership interests of existing shareholders, and that dilution may be material.

Force Fuels Common Stock has little prior trading market or liquidity, and there can be no assurances that any trading market will develop.

There is a minimal trading market for our Common Stock.   No assurance can be given that an orderly trading market or any trading market will ever develop for our Common Stock.

In addition, Force Fuels common stock is unlikely to be followed by any market analysts, and there may be few institutions acting as market makers for the common stock.  Either of these factors could adversely affect the liquidity and trading price of our common stock.  Also, the stock market in general has experienced extreme price and volume volatility that has especially affected the market prices of securities of many companies.  At times, this volatility has been unrelated to the operating performance of particular companies.  These broad market and industry fluctuations may adversely affect the trading price of the common stock, regardless of the Company’s actual operating performance.

The trading price of our Common Stock is likely to be subject to significant fluctuations.

There can be no assurance as to the prices at which Force Fuels common stock will trade, if any trading market develops at all.  Until the Common Stock is fully distributed and an orderly market develops, the price at which such stock trades may fluctuate significantly and may be lower or higher than the price that would be expected for a fully distributed issue.  Prices for the Common Stock will be determined in the marketplace and may be influenced by many factors, including:

the depth and liquidity of the market,

developments affecting the business of Force Fuels generally and the impact of those factors referred to below in particular,

investor perception of Force Fuels, and

General economic and market conditions.

Item 2 - DESCRIPTION OF PROPERTY

The Company signed a 24 month lease beginning October 1, 2010 for 2,478 square feet of space in an office building located at 1503 South Coast Drive, Costa Mesa CA, 92626. The lease agreement has one 24 month extension option.

Item 3 - LEGAL

The Company has one outstanding complaint in the amount of approximately $25,000 which it anticipates resolving within the next quarter.

Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

PART II

Item 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is quoted on the Over the Counter Bulletin Board (OTCBB) under the symbol FOFU.  The following table sets forth, for the periods indicated, the reported high and low closing bid quotations for our common stock as reported on the OTCBB. The bid prices reflect inter-dealer quotations, do not include retail markups, markdowns, or commissions, and do not necessarily reflect actual transactions.  

Quarter Ended			High Bid			Low Bid
July 31, 2010		$	1.15		$	0.30
April 30, 2010		$	3.75		$	3.75
January 31, 2010		$	*		$	*
October 31, 2009		$	*		$	*
July 31, 2009		$	*		$	*
April 30, 2009		$	*		$	*
January 31, 2009		$	*		$	*
October 31, 2008		$	*		$	*
* Our common stock had no active trading market until April 27, 2010

Holders

We currently have 224 record holders of our common stock.

Dividends

We have never paid any cash dividends on shares of our Common Stock and do not anticipate that we will pay dividends in the foreseeable future.  We intend to apply any earnings to fund the development of our business.  The purchase of shares of Common Stock is inappropriate for investors seeking current or near term income.

Recent Sales of Unregistered Securities

On January 29, 2009 the Company issued 60,000 shares of the Company’s common stock to three individuals in exchange for professional and consulting services rendered at $0.10 per share having an aggregate value of $6,000.

On October 1, 2009 the Company, pursuant to an employment agreement issued 1,000,000 shares of its common stock to Oscar Luppi at $0.30 per share, having a value at $300,000.

On January 28, 2010 the Company issued 1,122,366 shares of the Company’s common stock to three entities for consulting services, at $0.30 per share, having an aggregate value of $336,710. 

On March 16, 2010 the Company issued 22,000 shares of the Company’s common stock to two entities for consulting services rendered at $0.30 per share, having an aggregate value of $6,600.

On March 30, 2010 the Company issued 150,000 shares of the Company’s common stock to two entities for consulting services rendered at $0.30 per share, having an aggregate value of $45,000.

On April 30, 2010 the Company issued 138,000 shares of the Company’s common stock upon conversion of promissory notes at an average price of $4.07 per share, having an aggregate value of $561,613.

On June 25, 2010 the Company issued 150,000 shares of the Company’s common stock, to a lender as a loan inducement fee. The shares were valued at $0.89 per share, having an aggregate value of $133,500.

On July 31, 2010 the Company issued 10,000 shares of the Company’s common stock upon conversion of a promissory note at a price of $0.94 per share, having an aggregate value of $9,400.

Subsequent to July 31, 2010 the Company issued 181,746 shares of the Company’s Common Stock, to 2 entities for consulting services; 50,000 shares were valued at $25,000; 31,746 were valued at $33,333; and 100,000 were valued at $65,000; and 60,000 shares to a lender as partial compensation, for a $30,000 loan, valued at $15,600. Each of the issuances described above was a privately negotiated transaction made in reliance upon the exemption from registration provided in Section 4(2) of the Securities Act of 1933.

As of the close of business on December 22, 2010, there were 7,841,875 shares of our Common Stock, par value $0.001 per share, issued and outstanding. 

Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

This Annual Report on Form 10-K includes current beliefs, expectations and other forward looking statements, the realization of which may be adversely impacted by any of the factors discussed or referenced throughout this Form 10-K, including but not limited to, factors under the heading, “Item 1A. Risk Factors” in Part I above.

The Company had no operations prior to the transfer to the Company on July 31, 2008 of assets pursuant to the Assignment and Contribution Agreement with ICE.

Under the terms of the Assignment and Contribution Agreement, the Company has undertaken to raise capital and to make payments to ICE in an aggregate amount of $400,000, $100,000 of which was due on or before March 15, 2009; and $300,000 of which was due on or before June 15, 2009.  The payment obligations were to accelerate and become immediately due in the event of any nonpayment or bankruptcy.  If the Company fails to raise these funds and pay its obligations to ICE, the Company will be unable to continue to conduct its business.  On January 30, 2009 ICE and the Company entered into an extension agreement to extend the timeline for the $400,000 cash payment as follows; force Fuels shall make (8) separate installment payments, each in the amount of $50,000, due on or before the last day of each quarter of Force Fuels’ fiscal year, commencing with the first installment due on or before April 30, 2010 and the eighth and final payment due on or before January 31, 2012.

Results of Operations

Revenues

During the year ended July 31, 2010, we realized our first oil revenues. We realized $7,451 from the sale of oil produced by our Kansas wells compared to $-0- during 2009.

Operating expenses

Our operating expenses for the year ended July 31, 2010 totaled $1,915,561 compared to $397,701 for 2009. The increase was primarily the result of significant increases in stock based compensation, impairment of intellectual property rights, and general and administrative expenses. We issued stock and warrants to various consultants. The stock based compensation expense in 2010 was $300,000 compared to $6,000 in 2009. Our research and development expense decreased from $115,434 in 2009 to $-0- in 2010 as we focused on our oil projects. Our general and administrative expenses increased from $170,767 in 2009 to $1,022,481 in 2010. Officer compensation expense increased from $105,500 in 2009 to $224,080 in 2010.

Other Income (Expenses)

During 2010 we recorded a loss on the settlement of debt of $310,014 compared to $-0- in 2009. We also recorded a loss on disposal of assets in the amount o f$19,915 during the year ended December 31, 2010, of which there was no comparable loss during 2009. Our interest expense increased from $2,022 in 2009 to $43,850 in 2010.

Net Loss

Our net loss for the year ended July 31, 2010 was $2,281,889 compared to $399,723 for 2009. This translates to $0.29 per share compared to $0.05, respectively.

Liquidity and Cash Flows

We used $181,316 of cash in our operating activities during the year ended July 31, 2010 compared to $371,538 during 2009. The increased loss was due to our expansion in to the oil extraction industry. 

We used $24,250 of cash in our investing activities to purchase equipment in 2009 compared to $-0- in 2010. 

We had net cash provided by financing activities of $268,158 during the year ended July 31, 2010 compared to $395,597 during 2009. During 2010 we used $100,000 of cash to repay notes payable. We received $356,158 as proceeds from notes payable during 2010 compared to $62,408 during 2010. We also received $12,000 pursuant to related party notes payable during 2010, compared to $333,189 in 2009. 

We have $86,842 of cash on hand as of July 31, 2010. We expect to receive substantial revenues from our oil production but the revenues will not be sufficient to meet our cash flow requirements. We also had a deficit in working capital of $1,856,684 as of July 31, 2010. Accordingly, we expect to continue to rely on the sale of our debt and equity instruments for at least the next 12 months.

Recently issued accounting pronouncements.

In May 2009, the FASB issued ASC 855 (previously SFAS 165, Subsequent Events). ASC 855 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS 165 will be effective for interim or annual period ending after June 15, 2010 and will be applied prospectively. The Company adopted the requirements of this pronouncement during the quarter ended July 31, 2010. The adoption of SFAS 165 did not have an impact on its consolidated results of operations or consolidated financial position.

In June 2009, the FASB issued ASC 810, (previously SFAS No. 167, Amendments to FASB Interpretation No. 46(R), which modifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. SFAS 167 clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. SFAS 167 requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity. SFAS 167 also requires additional disclosures about a company’s involvement in variable interest entities and any significant changes in risk exposure due to that involvement. SFAS 167 is effective for fiscal years beginning after June 15, 2010.

In June 2009, the FASB issued ASC 105 (previously SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles ("GAAP") - a replacement of FASB Statement No. 162), which will become the source of authoritative accounting principles generally accepted in the United States recognized by the FASB to be applied to nongovernmental entities. The Codification is effective in the third quarter of 2009, and accordingly, the Quarterly Report on Form 10-Q for the quarter ending September 30, 2009 and all subsequent public filings will reference the Codification as the sole source of authoritative literature. The Company does not believe that this will have a material effect on its consolidated financial statements. In June 2009, the FASB issued amended standards for determining whether to consolidate a variable interest entity. These amended standards eliminate a mandatory quantitative approach to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity in favor of a qualitatively focused analysis, and require an ongoing reassessment of whether an entity is the primary beneficiary. These amended standards are effective for us beginning in the first quarter of fiscal year 2010 and we are currently evaluating the impact that adoption will have on our consolidated financial statements.

In August 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, which amends ASC Topic 820, Measuring Liabilities at Fair Value, which provides additional guidance on the measurement of liabilities at fair value. These amended standards clarify that in circumstances in which a quoted price in an active market for the identical liability is not available, we are required to use the quoted price of the identical liability when traded as an asset, quoted prices for similar liabilities, or quoted prices for similar liabilities when traded as assets. If these quoted prices are not available, we are required to use another valuation technique, such as an income approach or a market approach. These amended standards are effective for us beginning in the fourth quarter of fiscal year 2009 and are not expected to have a significant impact on our consolidated financial statements.

Critical accounting policies

The preparation of financial statements and related notes requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.  An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements.

Because of our limited level of operations, we have not had to make material assumptions or estimates other than our assumption that we are a going concern.

Seasonality.

Our business is not seasonal.

Item 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements filed as part of this Annual Report on Form 10-K are set forth on the pages F-2 through F-4 of this report and are incorporated herein by reference.

Item 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On October 6, 2009 Li and Company resigned as the Registrants registered public accounting firm. The reports of Li and Company on the Registrant’s financial statements for the fiscal years ending July 31, 2007 and July 31, 2008 did not contain any adverse opinion or disclaimer of opinion, and such reports were not qualified or modified as to uncertainty, audit scope or accounting principles other than an explanatory paragraph as to the Company’s ability to continue as a going concern.  During the two fiscal years, referred to above, there were no disagreements between the registrant and Li and Company on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to the satisfaction of Li and Company would have caused Li and Company to make reference to the matter in its reports on the Registrant’s consolidated financial statements for such years.

On November 17, 2009 the Company engaged Kabani and Company, Inc. as its registered public accounting firm. Kabani and Company resigned on November 15, 2010. There were no significant disagreements between Kabani and the Company on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures which, if not resolved to the satisfaction of Kabani and Company would have caused Kabani and Company to make reference to the matter in its reports on the Registrants financial statements for such years.

On November 16, 2010 the Company engaged Sadler, Gibb and Associates as its registered public accounting firm.

Item 9AT – CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our Chief Executive Officer, who is also our Chief Financial Officer (the “Certifying Officer”), has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of July 31, 2009.  Based on this evaluation, our Certifying Officer has concluded that our disclosure controls and procedures were ineffective to ensure that information required to be disclosed in our periodic reports is recorded, processed, summarized and reported, within the time periods specified for each report and that such information is presented to our management as appropriate to allow timely decisions regarding required disclosure.

The Certifying Officer has further indicated that there were no significant changes in our internal controls or other factors that could significantly affect such controls subsequent to the date of his evaluation, and there were no corrective actions with regard to significant deficiencies and material weaknesses. A system of controls, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Evaluation of Internal Controls over Financial Reporting

The Certifying Officer is also responsible for establishing and maintaining adequate internal control over our financial reporting.  Internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.  Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; (iii) provide reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and (iv) provide reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because changes in conditions may occur or the degree of compliance with the policies or procedures may deteriorate.

The Certifying Officer assessed the effectiveness of our internal control over financial reporting as of July 31, 2009.  This assessment is based on the criteria for effective internal control described in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on its assessment, he concluded that our internal control over financial reporting as of July 31, 2010 was not effective in the specific areas described in the “Disclosure Controls and Procedures” section above and as specifically described in the paragraphs below.

As of July 31, 2010 the Certifying Officer identified the following specific material weaknesses in the Company’s internal controls over its financial reporting processes:

Policies and Procedures for the Financial Close and Reporting Process — Currently there are no policies or procedures that clearly define the roles in the financial close and reporting process.  The various roles and responsibilities related to this process should be defined, documented, updated and communicated.  Failure to have such policies and procedures in place amounts to a material weakness to the Company’s internal controls over its financial reporting processes.

Adequacy of Accounting Systems at Meeting Company Needs — The accounting system in place at the time of the assessment lacks the ability to provide high quality financial statements from within the system, and there were no procedures in place or built into the system to ensure that all relevant information is secure, identified, captured, processed, and reported within the accounting system.  Failure to have an adequate accounting system with procedures to ensure the information is secure and accurately recorded and reported amounts to a material weakness to the Company’s internal controls over its financial reporting processes.

Segregation of Duties — The Certifying Officer has identified a significant general lack of definition and segregation of duties throughout the financial reporting processes.  Due to the pervasive nature of this issue, the lack of adequate definition and segregation of duties amounts to a material weakness to the Company’s internal controls over its financial reporting processes.

In light of the foregoing, once we have the adequate funds, management plans to develop the following additional procedures to help address these material weaknesses:

The Company will create and refine a structure in which critical accounting policies and estimates are identified, and together with other complex areas, are subject to review by other members of management as well as the Company’s outside accountant.  In addition, we plan to enhance and test our month-end and year-end financial close process.  Additionally, our board of directors will increase its review of our disclosure controls and procedures.  We also intend to develop and implement policies and procedures for the financial close and reporting process, such as identifying the roles, responsibilities, methodologies, and review/approval process.  We believe these actions will remediate the material weaknesses by focusing additional attention and resources in our internal accounting functions.  However, the material weaknesses will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  The Certifying Officer’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission.

This report shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that section , and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

PART III

Item 10 - DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

On October 1, 2009 the Board of Directors accepted Mr. Lawrence Weisdorn voluntary resignation from his positions of Director, President, Chief Executive officer and Chief Financial Officer of the Registrant.  There were no disagreements or misunderstandings relating to the Registrant’s operation, policies or practices between the Board and Mr. Weisdorn leading to his resignation.  Mr. Weisdorn  cancelled, effective May 1, 2009  the October 21, 2009 employment agreement entered into between himself and the Registrant  and agreed to cancel all wages accrued but unpaid as of April 30, 2009.

The following table sets forth the name, age and position of our executive officers, certain non-executive officers and directors: 

Name	Age	Position and Offices with the Company
Oscar Luppi (1)	46	Chairman of the Board, President, Chief Executive Officer, and Director
Donald Hejmanowski (2)	50	Secretary, and Director
Thomas C. Hemingway (3)	52	Interim Treasurer, Director

________________________________

(1)	Pursuant to an employment agreement dated October 1, 2009,Oscar Luppi was appointed Chairman of the Board, President and Chief Executive Officer, and was elected as a director concurrently therewith.

 

(2)

Pursuant to an employment agreement dated October 21, 2008,Donald Hejmanowski was appointed Secretary and Vice President of Business Development.  Mr. Hejmanowski was elected as a director concurrently therewith.  On October 1, 2009 Mr. Hejmanowski cancelled the employment agreement effective May 1, 2009 and agreed to cancel all unpaid wages accrued but unpaid as of April 30, 2009.

 

(3)	Thomas C. Hemingway resigned from his positions as President, Chief Executive Officer and Chief Financial Officer effective October 21, 2008.  On October 1, 2009 Mr. Hemingway, resigned his position of Chairman of the board, and without compensation, was appointed interim Treasurer.

Biographies

Oscar Luppi (46)  – Mr. Luppi has served as the President, Chief Executive Officer and Chairman of the Board of Directors of the Registrant from October 1, 2009 to the present.  From May 1990 to the present, Mr. Luppi has served as President of International Patent, Manufacturing and Services, Inc., a private investment company.  From March 2001 through October 2007, Mr. Luppi also served as President of Phonica SpA., an Italian telecom company.

Donald Hejmanowski – Director and Corporate Secretary 

Don has served as a Director of the Company and Corporate Secretary from November 1, 2009 to the present.  He is also currently the Secretary, Treasurer and a Director of H Y D, Inc., a Nevada corporation, a position he has held from 2002 to the present. HYD is in the business of providing business consulting services. Mr. Hejmanowski also served as the Vice-President of Corporate Communications and a Director of Vision Industries Corp. from December 2008 until May 2010.  Vision Industries Corp. is a provider of electric/hydrogen hybrid powered vehicles and turnkey hydrogen fueling systems.  He also has served as a Director of Ice Conversions, Inc., a California corporation, from November 2005 to March 2010. Ice Conversions is in the business of developing electric drive systems for installation in short-haul commercial trucks.   From April 2006 to February 2009, he served as a Director of US Farms, Inc., a Nevada corporation.

US Farms, Inc. is a diversified commercial farming and nursery company.  From January 2006 to September 2007, he was a Director of Cyclone Energy, Inc., a California corporation that sought to develop, distribute, and market alternative fuels and hydrogen fuels through the existing gas station infrastructure. He also served as a Director of LitFunding Corp. from June 2005 to September 2006. LitFunding Corp. provided funding for litigation primarily for plaintiffs’ attorneys. From November 2002 to April 2005, Don served as a consultant to American Water Star, Inc. a water bottling and distribution company.

Thomas Hemingway (52) – Mr. Hemingway has served as the Chairman of the Registrant from May 9, 2006 to the present and has previously served as the Chief Executive Officer and Chief Financial Officer of the Registrant from May 9, 2006 to October 21, 2008.  Mr. Hemingway has served as the Chairman, Chief Operating Officer and Secretary of NextPhase Wireless, Inc., a broadband connectivity solutions provider from January 2007 to the present.  On June 13, 2008, Mr. Hemingway became Interim Chief Financial Officer of NextPhase Wireless, Inc. and on September 4, 2008, Mr. Hemingway was named Chief Executive Officer.  Mr. Hemingway has also served as the President and Chief Executive Officer of Redwood Investment Group, an investment banking trust, from June 2003 to the present.  Mr. Hemingway previously served as Chairman and Chief Executive Officer of Oxford Media, a next generation media distribution company, from 2004 to 2006; and as Chairman and Chief Executive Officer of Esynch Corporation, developer and marketer of video-on-demand services and video streaming through the Internet, from 1998 to 2003.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act of 1934, as amended (the “EXCHANGE ACT”), requires the Company’s executive officers and directors and persons who own more than ten percent of a registered class of the Company’s equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission and to furnish the Company with copies of these reports.

To the Company’s knowledge, based solely on its review of the copies of Section 16(a) forms and other specified written representations furnished to the Company, the following table shows all of the late filings by the Company’s officers, directors or greater than ten percent beneficial owners known to the Company of a Form 3 or any Forms 4 during or with respect to fiscal years 2008 or 2007. 

BENEFICIAL OWNER	FORM 3	FORM 4
Thomas C. Hemingway	1	1
Lawrence Weisdorn	1
Donald Hejmanowski	1
Gary Cohee	1	1

Item 11 - EXECUTIVE COMPENSATION

On October 21, 2008, the Company experienced a change in management as reported to the Securities Exchange Commission on the Company’s Form 8-K filed October 23, 2008.  Such filing is heretofore incorporated by reference.  On October 1, 2009 the Company had a further management change, reported to the Securities Exchange Commission on the Company’s Form 8-K filed October 2, 2009.  Such filing is heretofore incorporated by reference.

Listed in the table below are the Company’s recently appointed officers as well as the Company’s prior management.  There have been no stock options granted to employees or management during the years covered in the table below, and no employee stock options are currently outstanding.
 

SUMMARY COMPENSATION TABLE

Name and Principal Position	Fiscal Year	Salary ($)	Stock Awards ($)	All Other Compensation ($)	Total Compensation ($)
Lawrence Weisdorn (1),	2008	$39,500 (2)	$75,000 (3)	--	$114,500
Ex-President, CEO, CFO,	2009	$180,000 (2)			$180,000
and director
Donald Hejmanowski (4),	2008	--	$36,000 (5)	--	$36,000
Secretary and  director	2009	$38,637 (6)			$41,137
	2010	$60,000
Thomas C. Hemingway) (7)	2008	--	$25,500 (8)	--	$25,500
Ex-President, CEO, CFO,	2009	-			-
and Chairman	2010	$60,000
Oscar Luppi (9)	2008	-	-	-	-
Chairman, President and Chief	2009	-	-	-	-
Executive Officer	2010	$250,000	-	-	-

__________________________________

(1)	Pursuant to an employment agreement effective October 21, 2008, Lawrence Weisdorn was appointed President, Chief Executive Officer and Chief Financial Officer of the Company. On October 1, 2009, Mr. Weisdorn resigned from all of those positions.

 

(2)	Accrued salary pursuant a consulting agreement entered into on May 12, 2008, and replaced by an employment agreement dated October 21, 2008.  $145,000 was paid against these accrued items and the remaining balance of $74,500, by agreement was forgiven and written off.

 

(3)	Grant of 2,500,000 shares valued at $0.03 per share pursuant to a consulting entered in to May 12, 2008.  These shares were subsequently returned to the transfer agent on August 31, 2009, for cancellation.

 

(4)(6)

Pursuant to an employment agreement effective October 21, 2008, Donald Hejmanowski was appointed Secretary and Vice President of Business Development of the Company and was entitled to remuneration of  $6,500 per month.  That fee was accrued through April 30, 2009.  The employment agreement was cancelled effective May 1, 2009 and the accrued amount of $38,637 was written off. A compensation agreement was entered into on October 29,2009 to remunerate him at the rate of $5,000 per month effective November 1, 2009.

 

(5)	Grant of 1,200,000 shares valued at $0.03 per share pursuant to a consulting agreement entered into May 12, 2008.

 

(7)

Thomas C. Hemingway served as the Company’s President, Chief Executive Officer and Chief Financial Officer from May 9, 2006 to October 21, 2008 and served as the Company’s Chairman through September 30, 2009. A compensation agreement was entered into on October 29,2009 to remunerate him at the rate of $5,000 per month effective November 1, 2009.

 

(8)	Grant of 850,000 shares valued at $0.03 per share for services rendered to the company.

 

(9)	On October 1,2009 Mr. Luppi entered into an employment agreement with the company where-by he was appointed Chairman, President and Chief Executive Officer receiving an annual base salary of $250,000 and a signing bonus of  1,000,000 shares of the company’s common stock.

DIRECTOR COMPENSATION

Our current directors received no compensation for their services as director during fiscal years 2008 and 2009.  There were no stock options granted to directors during fiscal years 2008 and 209, other than those referred to, in Item 11(9),   above and no other director stock options are currently outstanding.

Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth the number and percentage of the shares of the Company’s Common Stock owned as of  July 31, 2009 by all persons known to the Company who own more than 5% of the outstanding number of such shares, by all directors of the Company, and by all officers and directors of the Company as a group.  Unless otherwise indicated, each of the stockholders has sole voting and investment power with respect to the shares beneficially owned.

Name and Address of Beneficial Owner (1)		Number of Shares Beneficially Owned (1)			Percent of Class
Thomas C. Hemingway 4630 Campus Dr. Ste. 101 Newport Beach CA 92660		1,000,000	(2)		12.76%
Oscar Luppi 1503 South Coast Dr. Ste. 206 Costa Mesa, CA 92626		1,000,000	(2)		12.76%
Donald Hejmanowski 22525 Pacific Coast Hwy, Suite #101 Malibu, CA 90265		500,000	(2)		6.38%
All Directors and Officers as a group (3 persons)		2,500,000	(2)		31.9%
ICE Conversions, Inc. (3) 22525 Pacific Coast Hwy, Suite #101 Malibu, CA 90265		400,000	(4)		5.10%
Gary Cohee PMB Securities 4630 Campus Dr. Suite 101 Newport Beach, CA 92660		1,000,000			12.76%

___________________________________________

(1)	For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within 60 days of July 31, 2009.

 

(2)

For purposes of computing the percentage of outstanding shares of common stock held by each person or group of persons named above, any security which such person or persons has or have the right to acquire within such a date is deemed to be outstanding but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person.  Except community property laws, the Company believes, based on information supplied by such persons, that the persons named in this table have sole voting and investment power with respect to all shares of common stock which they beneficially own.

 

(3)	Lawrence Weisdorn resigned from all executive and Board positions effective October 1, 2009.  Both he and Donald Hejmanowski both currently serve as officers and directors of ICE Conversions, Inc.

 

(4)	These are the number of shares outstanding after the 1,500,000 shares are cancelled and replaced by the issuance of 1,000,000 shares pursuant to the terms of the Assignment and Contribution Agreement.

 

Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Thomas C. Hemingway and Gary Cohee were co-founders of Great American Coffee Company, Inc. which, for accounting purposes, acquired the Company effective May 9, 2006.  In connection with the Merger, Messrs. Hemingway and Cohee each acquired beneficial ownership of 500,000 prior to reverse split shares of the Company's Common Stock. Mr. Hemingway and Mr. Cohee were granted 850,000 shares each for services rendered to the Company.

Lawrence Weisdorn was granted 2,500,000 shares of Common Stock and had accrued, as of July 31, 2009, $219,500 in compensation pursuant to a consulting agreement dated May 12, 2008 which was subsequently replaced by an employment agreement dated October 21, 2009 and was appointed President, Chief Executive Officer and Chief Financial Officer of the Company,  and elected as a director of the Company concurrently therewith.  Mr. Weisdorn subsequently resigned from all executive and board positions, terminated the employment agreement as of May 1, 2009 and forgave any accrued but unpaid salary as of April 30, 2009.

Donald Hejmanowski was granted 1,200,000 shares of Common Stock pursuant to a consulting agreement dated May 12, 2008.  This consulting agreement was replaced by an employment agreement dated October 21, 2008, whereby Mr. Hejmanowski was appointed Secretary and Vice President of Business Development.  Mr. Hejmanowski was elected as a director of the Company concurrently therewith.  Mr. Hejmanowski terminated the employment agreement as of May 1, 2009 and forgave any accrued but unpaid salary as of April 30, 2009.

On June 23, 2008, 1,500,000 shares were issued to ICE pursuant to a Joint Venture Agreement dated May 12, 2008.  The Joint Venture Agreement was replaced by an Assignment and Contribution Agreement effective July 31, 2008 whereby ICE transferred certain assets and intellectual property rights to the Company in exchange for Common Stock of the Company and a cash payment totaling $400,000.  The Company had granted ICE a first priority perfected security interest in the Company's business and assets in order to secure the Company’s obligation to pay that $400,000 to ICE.  Until payment in full of that amount, the Company also could not sell, transfer or encumber any such assets without Ice’s prior written consent.  Failure to pay the obligation when due would likely result in a foreclosure upon the assets.  Pursuant to the Assignment and Contribution Agreement, One million one hundred thousand of of the 1,500,000 shares previously issued to ICE were cancelled.

Item 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES 

Our former principal accountants, Li & Company, PC billed us approximately $12,000 for professional services rendered in connection with our Quarterly Reports on Form 10-Q for the periods ended October 31, 2007, January 31, 2008 and April 30, 2008 and for the audit of our consolidated financial statements included in our Annual Reports on Form 10-K for the fiscal year ended July 31, 2008.

Our former principal accountants, Kabani and Company, Inc., billed us approximately $10,000 for professional services rendered in connection with our Quarterly Reports on Form 10-Q for the periods ended October 31, 2008, January 31, 2009 and 2010, and April 30, 2009 and 2010, and for the audit of our consolidated financial statements included in our Annual Reports on Form 10-K for the fiscal year ended July 31, 2009.

Our principal accountants, Sadler, Gibb & Associates, billed us approximately $20,000 for professional services rendered in connection with the audit of our consolidated financial statements included in our Annual Reports on Form 10-K for the fiscal year ended July 31, 2010.

Our principal accountants did not bill us any fees for tax compliance, tax advice and tax planning for our fiscal years ended July 31, 2010 and 2009.

PART IV

Item 15 – EXHIBITS

Please see the Exhibit Index located behind the signature page

 

 

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FORCE FUELS, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

July 31, 2010 and 2009

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Contents	Page(s)
Report of Independent Registered Public Accounting Firm	F-1
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets at July 31, 2010 and 2009	F-3
Consolidated Statements of Operations for the Fiscal Years Ended July 31, 2010 and 2009 and for the Period from July 12, 2002 (Inception) through July 31, 2010	F-4
Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended July 31, 2009 and 2010 and for the Period from July 12, 2002 (Inception) through July 31, 2010	F-6
Consolidated Statements of Cash Flows for the Fiscal Years Ended July 31, 2009 and 2009 and for the Period from July 12, 2002 (Inception) through July 31, 2010	F-7
Notes to the Consolidated Financial Statements	F-8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

SADLER, GIBB & ASSOCIATES, LLC

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
Force Fuels, Inc.
(A Development Stage Company)

We have audited the accompanying balance sheet of Force Fuels, Inc. as of July 31, 2010, and the related statements of operations, stockholders’ equity (deficit) and cash flows for the year then ended and for the period from inception on July 15, 2002 through July 31, 2010. 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 audits. The consolidated financial statements of Force Fuels, Inc. as of July 31, 2009, were audited by other auditors whose report dated December 23, 2009, expressed an unqualified opinion on those statements.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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 audits 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 audits provide a reasonable basis for our opinion.

In our opinion the financial statements referred to above present fairly, in all material respects, the financial position of Force Fuels, Inc. as of July 31, 2010, and the results of their operations and their cash flows for the year then ended and for the period from inception on July 15, 2002 through July 31, 2010, in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company had accumulated losses of $3,051,645 as of July 31, 2010, which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Sadler, Gibb & Associates, LLC

Salt Lake City, UT
December 22, 2010

F-1

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 
To the Board of Directors and Stockholders
Force Fuels, Inc.

We have audited the accompanying consolidated balance sheet of Force Fuels, Inc. (A Development Stage Company) as of July 31, 2009, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the year ended July 31, 2009. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.  

We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 consolidated financial position of Force Fuels, Inc. as of July 31, 2009, and the results of its consolidated statements of operations, stockholders' equity (deficit), and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. .  As discussed in Note 3 to the financial statements, the Company had incurred cumulative losses of $769,756 and net losses of $399,723 for the year ended July 31, 2009. These factors raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also described in Note 3.  The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 

/s/ Kabani & Company, Inc.
CERTIFIED PUBLIC ACCOUNTANTS
Los Angeles, California
December 23, 2009

 

F-2

 

FORCE FUELS, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets

		July 31,			July 31,
		2010			2009
ASSETS
CURRENT ASSETS
Cash		$	86,842		$	-
Account receivable, net			7,451			-
Inventory, net			81,980			-
Prepaid expenses			10,000			-
Total Current Assets			186,273			-
OIL AND GAS PROPERTY, NET			1,258,292			-
PROPERTY AND EQUIPMENT, NET			133,361			21,649
PURCHASED INTELLECTUAL PROPERTY RIGHT, NET			-			387,000
TOTAL ASSETS		$	1,577,926		$	408,649
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	224,259		$	45,375
Notes payable, net			139,747			62,408
Notes payable for acquisition of oil and gas property, net			1,368,121			-
Current portion of Intellectual property right payable			-			100,000
Due to related parties						333,189
Accrued officer salaries			310,830			-
Total Current Liabilities			2,042,957			540,972
NON CURRENT LIABILITIES:
Asset retirement obligation			36,622			-
Intellectual property right payable, net of current portion			-			300,000
Total Non Current Liabilities			36,622			300,000
TOTAL LIABILITIES			2,079,579			840,972
CONTINGENCIES & COMMITMENTS			-			-
STOCKHOLDERS' DEFICIT:
Preferred stock at $0.001 par value: 1,000,000 shares authorized;
none issued or outstanding			-			-
Common stock at $0.001 par value: 100,000,000 shares authorized;
6,475,129 and 7,682,763 shares issued, respectively; 6,975,129 and
7,682,763 shares outstanding, respectively (Note 8)			6,475			7,683
Additional paid-in capital			2,543,518			329,750
Deficit accumulated during development stage			(3,051,645)			(769,756)
Total Stockholders' Deficit			(501,653)			(432,323)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	1,577,926		$	408,649

The accompanying notes are an integral part of these consolidated financial statements.

F-3

 

FORCE FUELS, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations

								For the Period
								From Inception
								on July 15,
		For the Years Ended						2002 Through
		July 31,						July 31,
		2010			2009			2010
REVENUES - OIL AND GAS		$	7,451		$	-		$	7,451
OPERATING EXPENSES
Well operating costs			25,000			-			25,000
Research and development			-			115,434			115,434
Salary and wages - officers			224,080			105,500			329,580
Stock based compensation			300,000			6,000			494,933
Impairment of intellectual property rights			344,000			-			344,000
General and administrative expenses			1,022,481			170,767			1,374,348
Total operating expenses			1,915,561			397,701			2,683,295
NET LOSS FROM OPERATIONS			(1,908,110)			(397,701)			(2,675,844)
OTHER INCOME (EXPENSES)
Loss on settlement of debt			(310,014)			-			(310,014)
Loss on disposal of assets			(19,915)			-			(19,915)
Interest expense			(43,850)			(2,022)			(45,872)
Total other income (expenses)			(373,779)			(2,022)			(375,801)
NET LOSS BEFORE TAXES			(2,281,889)			(399,723)			(3,051,645)
INCOME TAXES			-			-			-
NET LOSS		$	(2,281,889)		$	(399,723)		$	(3,051,645)
NET LOSS PER COMMON SHARE
- BASIC AND DILUTED		$	(0.29)		$	(0.05)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC AND DILUTED			7,773,790			7,650,213

The accompanying notes are an integral part of these consolidated financial statements.

F-4

FORCE FUELS, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)

														Deficit
														Accumulated			Total
								Additional						During the			Stockholders'
		Common Stock						Paid-in			Treasury			Development			Equity
		Shares			Amount			Capital			Stock			Stage			(Deficit)
Balance at inception on July 15, 2002			-		$	-		$	-		$	-		$	-		$	-
Common shares issued in March, 2006 for
cash at an average price of $2.43 per share			175,000			175			425,825			-			-			426,000
Adjustment on reverse acquisition
in March, 2006			1,050,000			1,050			(10,550)			(235,000)			-			(244,500)
Treasury stock purchased in June, 2006			-			-			-			(75,000)			-			(75,000)
Net loss for the period from inception on
July 15, 2002 through July 31, 2006			-			-			-			-			(30,873)			(30,873)
Balance, July 31, 2006			1,225,000			1,225			415,275			(310,000)			(30,873)			75,627
Net loss for the year ended July 31, 2007			-			-			-			-			(69,804)			(69,804)
Balance, July 31, 2007			1,225,000			1,225			415,275			(310,000)			(100,677)			5,823
Retirement of treasury stock in May, 2008			(1,100,000)			(1,100)			(308,900)			310,000			-			-
Common shares issued in May, 2008 for
services rendered at $0.03 per share			3,700,000			3,700			107,300			-			-			111,000
Common shares issued in June, 2008 for
services rendered at $0.03 per share			2,797,763			2,798			81,135			-			-			83,933
Common shares issued in June, 2008 at
$0.03 per share in onnection with assets
assignment agreement			1,000,000			1,000			29,000			-			-			30,000
Net loss for the year ended July 31, 2008			-			-			-			-			(269,356)			(269,356)
Balance, July 31, 2008			7,622,763			7,623			323,810			-			(370,033)			(38,600)
Common shares issued in February, 2010
for services rendered at $0.10 per share			60,000			60			5,940			-			-			6,000
Net loss for the year ended July 31, 2009			-			-			-			-			(399,723)			(399,723)
Balance, July 31, 2009			7,682,763		$	7,683		$	329,750		$	-		$	(769,756)		$	(432,323)

The accompanying notes are an integral part of these consolidated financial statements.

F-5

 

FORCE FUELS, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
(Continued)

														Deficit
														Accumulated			Total
								Additional						During the			Stockholders'
		Common Stock						Paid-in			Treasury			Development			Equity
		Shares			Amount			Capital			Stock			Stage			(Deficit)
Balance, July 31, 2009			7,682,763		$	7,683		$	329,750		$	-		$	(769,756)		$	(432,323)
Common shares issued in October, 2009
for signing bonus at $0.30 per share			1,000,000			1,000			299,000			-			-			300,000
Common shares issued in January, 2010
for services rendered at $0.30 per share			1,122,366			1,122			335,588			-			-			336,710
Common shares issued in March, 2010
for services rendered at $0.30 per share			172,000			172			51,428			-			-			51,600
Common shares issued in April, 2010
upon conversion of debt at an average
price of $4.07 per share			138,000			138			561,476			-			-			561,613
Issuance of shares in June, 2010 for
as a loan inducement fee
at $0.89 per share			150,000			150			133,350			-			-			133,500
Common shares issued in July, 2010
upon conversion of promissory
note at $0.94 per share			10,000			10			9,390			-			-			9,400
Cancellation of common shares			(3,800,000)			(3,800)			3,800			-			-			-
Forgiveness of debt by shareholder			-			-			739,689			-			-			739,689
Fair value of warrants granted			-			-			80,047			-			-			80,047
Net loss for the year ended July 31, 2010			-			-			-			-			(2,281,889)			(2,281,889)
Balance, July 31, 2010			6,475,129		$	6,475		$	2,543,518		$	-		$	(3,051,645)		$	(501,653)

The accompanying notes are an integral part of these consolidated financial statements.
F-6

FORCE FUELS, INC. AND SUBSIDIARY

(A Development Stage Company)
Consolidated Statements of Cash Flows

								For the Period
								From Inception
								on July 15,
		For the Years Ended						2002 Through
		July 31,						July 31,
		2010			2009			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss		$	(2,281,889)		$	(399,723)		$	(3,051,645)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation			6,673			2,601			9,274
Amortization of intangible assets			43,000			43,000			86,000
Impairment of intellectual property rights			344,000			-			344,000
Loss on settlement of debt			310,014			-			310,014
Loss on disposal of assets			19,915			-			19,915
Amortization of discount on debt			32,835			-			32,835
Stock-based compensation			300,000			-			300,000
Common stock issued for services			521,810			6,000			722,743
Fair value of warrants			40,063			-			40,063
Changes in operating assets and liabilities:
Accounts receivable			(7,451)			-			(7,451)
Accrued expenses			178,884			(23,416)			214,759
Accrued salaries			310,830			-			310,830
NET CASH USED IN OPERATING ACTIVITIES			(181,316)			(371,538)			(668,663)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of test equipment			-			(24,250)			(24,250)
NET CASH USED IN INVESTING ACTIVITIES			-			(24,250)			(24,250)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock			-			-			501,000
Payment of common stock to be issued			-			-			(75,000)
Purchase of treasury stock			-			-			(310,000)
Proceeds from notes payable			356,158			62,408			418,566
Repayment of notes payable			(100,000)			-			(100,000)
Due to related parties			12,000			333,189			345,189
NET CASH PROVIDED BY FINANCING ACTIVITIES			268,158			395,597			779,755
NET CHANGE IN CASH			86,842			(191)			86,842
CASH AT BEGINNING OF PERIOD			-			191			-
CASH AT END OF PERIOD		$	86,842		$	-		$	86,842

The accompanying notes are an integral part of these consolidated financial statements.
F-7

FORCE FUELS, INC. AND SUBSIDIARY

(A Development Stage Company)
Consolidated Statements of Cash Flows

								For the Period
								From Inception
								on July 15,
		For the Years Ended						2002 Through
		July 31,						July 31,
		2010			2009			2010
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for interest		$	-		$	-		$	-
Cash paid for income taxes		$	-		$	-		$	-
NON-CASH INVESTING AND AND FINANCING ACTIVITIES
Issuance of promissory note for investment in oil lease
rights and related assets		$	1,500,000		$	-		$	1,500,000
Forgiveness of debt from related party		$	739,689		$	-		$	739,689
Issuance of shares and debt for purchase of
intellectual property rights		$	-		$	-		$	430,000

The accompanying notes are an integral part of these consolidated financial statements.

F-8

 

FORCE FUELS, INC. AND SUBSIDIARY

(A Development Stage Company)

Notes to the Consolidated Financial Statements
For the Years Ended July 31, 2010 and 2009 

 

NOTE 1 - ORGANIZATION AND OPERATIONS

DSE Fishman, Inc. (a development stage company) (“DSE Fishman”) was incorporated under the laws of the State of Nevada in July 2002.   On May 14, 2008 DSE Fishman changed its name to Force Fuels, Inc. (“the Company”).  At that time the primary focus of the Company became the development and marketing of a proprietary, zero emission hydrogen fuel cell/electric battery hybrid drive system for automotive utilization. In October 2009 the Company retained new management and began the process of exploring the feasibility of acquiring, developing and marketing of green energy products as well as regulated and standardized energy based products, including traditional hydrocarbon based oil and gas and solar and wind energy.

Assignment and Contribution Agreement between the Company and ICE Conversions, Inc.

On July 31, 2008 the Company entered into an assignment and contribution agreement (“Assignment and Contribution Agreement”) with Lawrence Weisdorn and ICE Conversions, Inc. to operate a business engaged in the development, manufacture and marketing of electric drive systems for installation in short-haul commercial trucks.  The transactions contemplated by the Assignment and Contribution Agreement include:

(a) The contribution, transfer and license of certain assets and intellectual property rights of  ICE to the Company;

(b) The grant of 1,000,000 shares of Common Stock to ICE;  by subsequent agreement 600,000 of these shares were returned,  to the Company,  for cancelation, on December 9, 2009.

(c) Confirmation of the previous grant of 2,500,000 shares of Common Stock to Lawrence Weisdorn pursuant to a consulting agreement; by subsequent agreement these shares were returned on, August 31, 2009, for cancelation.

(d) Cash payment of $400,000 from the Company to ICE, made payable as follows: 100,000 on or before March 15, 2009 and $300,000 on or before June 15, 2009.

(e) On January 30, 2009 ICE agreed to extend the timeline for the $400,000 cash payment to allow Force Fuels to make 8 separate installment payments, each in the amount of $50,000, due on or before the last day of each quarter of Force Fuel’s fiscal year, commencing with the first installment due on or before April 30, 2010 and the eighth and final payment due on or before January 31, 2012.

The Assignment and Contribution Agreement replaced the Joint Venture Agreement dated May 12, 2008.  Five hundred thousand (500,000) of the 1,500,000 shares previously issued to ICE were to be cancelled on July 31, 2008, pursuant to the terms of the Assignment and Contribution Agreement.

In April 2010, the agreement was amended further.  By virtue of that amendment, the company returned to ICE all of the intellectual property rights described above and received, in exchange, intellectual property rights for the development of a hydrogen/electric hybrid automobile.  For this non-monetary exchange of assets, the fair value of neither the asset received nor the assets relinquished is determinable within reasonable limits and hence, the new asset has been recorded at the book value of the relinquished asset.  In addition, ICE cancelled the $400,000 debt owing to ICE for the acquisition of the above referenced intellectual property rights.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying audited consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) to Form 10-K. All inter-company balances and transactions have been eliminated.

F-9

FORCE FUELS, INC. AND SUBSIDIARY

(A Development Stage Company)

Notes to the Consolidated Financial Statements
For the Years Ended July 31, 2010 and 2009 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Reclassification

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.   These reclassifications had no effect on reported losses.

Development stage company

The Company is a development stage company as defined by ASC 915.  The Company is still devoting substantially all of its efforts to establishing the businesses. 

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates.

Cash equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Property and equipment, net

Property and equipment is recorded at cos. Depreciation is computed using the straight-line method over the estimated useful lives of 7 years. The cost of assets sold or retired and the related amounts of accumulated depreciation are removed from the accounts in the year of disposal. Any resulting gain or loss is reflected in current operations. Expenditures for maintenance and repairs are charged to operations as incurred. The capitalized cost of the oil properties will be amortized based on the units-of-production method.  Costs incurred for property acquisition and further development activity will be capitalized and amortized as previously noted.

Purchased intellectual property right

The Company has adopted the guidelines as set out in ASC 350 for purchased intellectual property right.  Under the requirements as set out in ASC 350, the Company amortizes the costs of acquired intellectual property right over the remaining legal lives, or estimated useful lives, or the term of the contract, whichever is shorter.  Purchased intellectual property rights were deemed to be fully impaired and written off during the year ended July 31, 2010.

Impairment of long-lived assets

The Company follows the provisions of ASC 360 for its long-lived assets.  The Company’s long-lived assets, which include test equipment and purchased intellectual property rights, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts.  Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets.  Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.  If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.  The Company determined that purchased intellectual property rights were deemed to be fully impaired and written-off during the year ended July 31, 2010.

F-10

FORCE FUELS, INC. AND SUBSIDIARY

(A Development Stage Company)

Notes to the Consolidated Financial Statements
For the Years Ended July 31, 2010 and 2009 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair value of financial instruments

The Company follows ASC 825 in accounting for its financial instruments.  The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties.  The carrying amounts of financial assets and liabilities, such as accrued expenses, approximate their fair values because of the short maturity of these instruments.  The Company’s note payable approximate the fair value of such instruments based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangement at July 31, 2010.

Research and development

The Company follows ASC 730 in accounting for research and development costs.  Accordingly, research and development costs are charged to expense as incurred.  Research and development costs consist primarily of remuneration for research and development staff, depreciation and maintenance expenses of research and development equipment, material and testing costs for research and development as well as research and development arrangements with unrelated third party research and development institutions.

Revenue recognition

The Company follows the guidance of ASC 605 for revenue recognition.  The Company will recognize revenues when it is realized or realizable and earned less estimated future doubtful accounts.  The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.  The Company will derive majority of its revenue from sales of oil produced by its wells.

The Company uses the sales method to account for sales of crude oil and natural gas. Under this method, revenues are recognized based on actual volumes of oil and gas sold to purchasers. The volumes sold may differ from the volumes to which the Company is entitled based on the interest in the properties. These differences create imbalances which are recognized as a liability only when the imbalance exceeds the estimate of remaining reserves. Costs associated with production are expensed in the period incurred.

Stock-based compensation

The Company accounted for its stock based compensation under the recognition and measurement principles of the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (revised 2004) “Share-Based Payment” (“SFAS No. 123R”)(ASC 718) using the modified prospective method for transactions in which the Company obtains employee services in share-based payment transactions and the Financial Accounting Standards Board Emerging Issues Task Force Issue No. 96-18 “Accounting For Equity Instruments That Are Issued To Other Than Employees For Acquiring, Or In Conjunction With Selling Goods Or Services” (“EITF No. 96-18”) for share-based payment transactions with parties other than employees provided in SFAS No. 123R(ASC 718).  All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.  The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the third-party performance is complete or the date on which it is probable that performance will occur. 

F-11

FORCE FUELS, INC. AND SUBSIDIARY

(A Development Stage Company)

Notes to the Consolidated Financial Statements
For the Years Ended July 31, 2010 and 2009 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income taxes

The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes” (“SFAS No. 109”)(ASC 740).  Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.  Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.

Net loss per common share

Basic net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period.  Diluted net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period.  There were no potentially dilutive common shares outstanding as of July 31, 2010 or 2009.

Cash flows reporting

The Company follows the provisions of ASC 230 for cash flows reporting and accordingly classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by ASC 230 to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.

Reporting segments

ASC 280 establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements regarding products and services, geographic areas and major customers. ASC 280 defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performances.  Currently, ASC 280 has no effect on the Company’s consolidated financial statements as substantially all of the Company’s operations are conducted in one industry segment.

Oil and Gas Properties, Successful Efforts Method

The Company uses the successful efforts method of accounting for oil and gas producing activities. Under the successful efforts method, costs to acquire mineral interests in oil and gas properties, to drill and equip exploratory wells that find proved reserves, and to drill and equip development wells are capitalized. Costs to drill exploratory wells that do not find proved reserves, geological and geophysical costs, and costs of carrying and retaining unproved properties are expensed as incurred. The Company evaluates its proved oil and gas properties for impairment on a field-by-field basis whenever events or changes in circumstances indicate that an asset’s carrying value may not be recoverable. The Company follows ASC 360 for these evaluations. Unamortized capital costs are reduced to fair value if the undiscounted future net cash flows from our interest in the property’s estimated proved reserves are less than the asset’s net book value.

F-12

FORCE FUELS, INC. AND SUBSIDIARY

(A Development Stage Company)

Notes to the Consolidated Financial Statements
For the Years Ended July 31, 2010 and 2009

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Oil and Gas Properties, Successful Efforts Method (Continued)

Unproved oil and gas properties that are individually significant are periodically assessed for impairment of value, and a loss is recognized at the time of impairment by providing an impairment allowance. Other unproved properties are amortized based on the Company's experience of successful drilling and average holding period. Capitalized costs of producing oil and gas properties, after considering estimated dismantlement and abandonment costs and estimated salvage values, are depreciated and depleted by the unit-of-production method. Support equipment and other property and equipment are depreciated over their estimated useful lives.

Under ASC 932, drilling costs for exploratory wells are initially capitalized but generally must be charged to expense unless the wells are determined to be successful within one year after completion of drilling. Circumstances that permit continued capitalization of exploratory drilling costs are addressed by ASC 932. The one-year limitation may be exceeded for an exploratory well only if sufficient reserves have been found to justify its completion and sufficient progress has been made in assessing the reserves and the economic and operating viability of the project. If the exploratory well does not meet both criteria, its capitalized costs are expensed, net of any salvage value. Annual disclosures are required under ASC 932 to provide information about management’s evaluation of capitalized exploratory well costs, including disclosure of (i) net changes from period to period in the costs for wells that are pending the determination of proved reserves, (ii) the amount of any exploratory well costs that have been capitalized for more than one-year after the completion of drilling and (iii) an aging of suspended exploratory well costs and the number of wells affected. 

On the sale or retirement of a complete unit of a proved property, the cost and related accumulated depreciation, depletion, and amortization are eliminated from the property accounts, and the resultant gain or loss is recognized. On the retirement or sale of a partial unit of proved property, the cost is charged to accumulated depreciation, depletion, and amortization with a resulting gain or loss recognized in income. On the sale of an entire interest in an unproved property for cash or cash equivalent, gain or loss on the sale is recognized, taking into consideration the amount of any recorded impairment if the property had been assessed individually. If a partial interest in an unproved property is sold, the amount received is treated as a reduction of the cost of the interest retained.

Recently issued accounting pronouncements

In December 2009, the FASB issued Accounting Standards Update 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 166. 

In October 2009, the FASB issued Accounting Standards Update 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing. This Accounting Standards Update amends the FASB Accounting Standard Codification for EITF 09-1. 

In October 2009, the FASB issued Accounting Standards Update 2009-14, Software (Topic 985): Certain Revenue Arrangements That Include Software Elements. This update changed the accounting model for revenue arrangements that include both tangible products and software elements. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. 

In October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. This update addressed the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than a combined unit and will be separated in more circumstances that under existing US GAAP. This amendment has eliminated that residual method of allocation. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. 
 

F-13

FORCE FUELS, INC. AND SUBSIDIARY

(A Development Stage Company)

Notes to the Consolidated Financial Statements
For the Years Ended July 31, 2010 and 2009 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recently issued accounting pronouncements (Continued)

In September 2009, the FASB issued Accounting Standards Update 2009-12, Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This update provides amendments to Topic 820 for the fair value measurement of investments in certain entities that calculate net asset value per share (or its equivalent). It is effective for interim and annual periods ending after December 15, 2009. Early application is permitted in financial statements for earlier interim and annual periods that have not been issued. 

In July 2009, the FASB ratified the consensus reached by EITF (Emerging Issues Task Force) issued EITF No. 09-1, (ASC Topic 470) “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance” (“EITF 09-1”). The provisions of EITF 09-1, clarifies the accounting treatment and disclosure of share-lending arrangements that are classified as equity in the financial statements of the share lender. An example of a share-lending arrangement is an agreement between the Company (share lender) and an investment bank (share borrower) which allows the investment bank to use the loaned shares to enter into equity derivative contracts with investors. EITF 09-1 is effective for fiscal years that beginning on or after December 15, 2009 and requires retrospective application for all arrangements outstanding as of the beginning of fiscal years beginning on or after December 15, 2009. Share-lending arrangements that have been terminated as a result of counterparty default prior to December 15, 2009, but for which the entity has not reached a final settlement as of December 15, 2009 are within the scope. Effective for share-lending arrangements entered into on or after the beginning of the first reporting period that begins on or after June 15, 2009. 

The Company has reviewed the above pronouncements and does not expect any of the provisions to have a material effect on the financial position, results of operations or cash flows of the Company.

NOTE 3 – DEVELOPMENT STAGE ACTIVITIES AND GOING CONCERN

The Company is currently in the development stage and has conducted minimal operations to date.  While pursuing the development and marketing of hydrogen/electric hybrid automobiles, the Company has focused on the process of acquiring oil producing properties and on April 23 entered into an agreement with Pemco, LLC, to acquire thirteen oil producing properties.

As reflected in the accompanying consolidated financial statements, the Company had a deficit accumulated during development stage of $2,651,645 at July 31, 2010 and had a net loss of $1,881,889 for the fiscal year ended July 31, 2010 with minimal revenues since inception.  Although the Company has not recorded significant revenue through July 31, 2010, it has been accumulating an inventory of oil, in storage tanks, and has recorded revenues subsequent to the year end.

While the Company is attempting to commence operations and generate revenues, the Company’s cash position is not sufficient enough to support the Company’s operations.  Management intends to raise additional funds by way of a public or private offering.   While the Company believes in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that these efforts will succeed and that the Company will continue as a going concern.  The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise capital and to generate sufficient revenues.  The consolidated financial statements do not include any adjustments that would be necessary if the Company is unable to continue as a going concern.
 

F-14

FORCE FUELS, INC. AND SUBSIDIARY

(A Development Stage Company)

Notes to the Consolidated Financial Statements
For the Years Ended July 31, 2010 and 2009 

NOTE 4 – PROPERTY AND EQUIPMENT, NET

The Company’s property and equipment as of July 31, 2010 and July 31, 2009 are summarized as follows:

		July 31,			July 31,
		2010			2009
Test equipment		$	-		$	24,250
Well operating equipment			138,300			-
Less: accumulated depreciation			(4,939)			(2,601)
Property and equipment, net		$	133,361		$	21,649

Depreciation expense for the fiscal years ended July 31, 2010 and 2009 was $6,673 and $2,601 respectively.

NOTE 5 – PURCHASED INTELLECTUAL PROPERTY RIGHTS

On July 31, 2008, the Company acquired, from ICE Conversions, Inc., a prototype electric battery-powered Freightliner and all electric drive components installed or to be installed and associated intellectual property rights (“Purchased Intellectual Property Right”) for (i) 1,000,000 shares of its common stock, and (ii) a cash payment of $400,000, payable as follows: $100,000 payable on or before March 15, 2009, and $300,000 payable on or before June 15, 2009.  The Purchased Intellectual Property Right is collateralized by a first priority perfected lien on all of the Company’s assets in favor of ICE.  The management of the Company determined that this transaction represented the acquisition of an asset-the intellectual property right - instead of a business.  Pursuant to ASC 805 a business is a self-sustaining integrated set of activities and assets conducted and managed for the purpose of providing a return to investors.  A business consists of (a) inputs, (b) processes applied to those inputs, and (c) resulting outputs that are used to generate revenues.  For a transferred set of activities and assets to be a business, it must contain all of the inputs and processes necessary for it to continue to conduct normal operations after the transferred set is separated from the transferor, which includes the ability to sustain a revenue stream by providing its outputs to customers.  

The prototype and related intellectual property right which the Company acquired was a specific application of electric vehicle to Class 8 Trucks, a work in progress, and did not contain any of the inputs and processes necessary for it to continue to conduct normal operations after the transferred set is separated from ICE Conversions, Inc., the transferor. The intellectual property right acquired was valued at $430,000 representing (i) an aggregate cash payment of $400,000 from the Company to ICE and (ii) the issuance of 1,000,000 shares of Common Stock to ICE valued at $0.03 per share or $30,000.

On January 30, 2009 ICE extended the timeline for the $400,000 payment in cash to eight (8) separate installment payments of $50,000, due on or before the last day of each quarter of Force Fuel’s fiscal year, commencing with the first installment due on or before April 30, 2010 and the eighth and final payment due on or before January 31, 2012.

On December 15, 2009 an additional 600,000 of 1,000,000 shares were cancelled by agreement between the parties.

In April 2010, the Company and ICE further amended the Assignment and Contribution agreement.  By virtue of that amendment, the company returned to ICE all of the intellectual property rights described above and received, in exchange, intellectual property rights for the development of a hydrogen/electric hybrid automobile.  For this non-monetary exchange of assets, the fair value of neither the asset received nor the assets relinquished is determinable within reasonable limits and hence, the new asset has been recorded at the book value of the relinquished asset.  In addition, ICE cancelled the $400,000 debt owing to ICE for the acquisition of the above referenced intellectual property rights.
 

F-15

FORCE FUELS, INC. AND SUBSIDIARY

(A Development Stage Company)

Notes to the Consolidated Financial Statements
For the Years Ended July 31, 2010 and 2009 

NOTE 5 – PURCHASED INTELLECTUAL PROPERTY RIGHTS (Continued)

Purchased intellectual property right, at cost, at July 31, 2010 and July 31, 2009, consisted of the following:

		July 31,			July 31,
		2010			2009
Purchased intellectual property rights, cost		$	-		$	430,000
Less: accumulated amortization			-			(43,000	)
Purchased intellectual property rights, net		$	-		$	387,000

Amortization expense for the fiscal year ended July 31, 2010 and 2009 was $43,000 and $43,000 respectively. 

NOTE 6 – PURCHASE OF OIL PROPERTIES

On April 23, 2010 the Company entered into an agreement with Pemco LLC to acquire thirteen oil producing properties.  The cost of the properties aggregated $1,500,000 (including all of the associated equipment already in place amounting to $138,300 and approximately nine hundred sixty (960) barrels of oil in storage amounting to $81,980 which has been considered as inventory. A deposit of $100,000 was paid at closing which reduced the amount due and owing to Pemco to $900,000, to be secured through a collateralized non-interest bearing promissory note to be paid, in equal monthly installments of $100,000,  commencing one month after the initial closing and continuing for nine months.  The remaining balance of $500,000 is to be paid to Energy Recovery Systems. The terms of the agreement with Energy Recovery Systems were not finalized as of the date of this report. The Company has imputed $58,375 of interest on the promissory notes at the rate of 10% per annum.

		July 31,			July 31,
		2010			2009
Note payable to ERS, unsecured, due November 30, 2010		$	500,000		$	-
Note payable to Pemco, unsecured, due February 23, 2011			900,000			-
Less: discount for imputed interest			(31,879)			-
Notes payable, net		$	1,368,121		$	-

NOTE 7 – NOTES PAYABLE

Notes payable at July 31, 2010 and July 31, 2009 consisted of the following:

		July 31,			July 31,
		2010			2009
Note payable on January 29, 2009, 10% interest, unsecured and due on demand		$	35,960		$	35,960
Note payable on June 1, 2009, 10% interest, unsecured and due on demand			13,738			13,738
Note payable on July 1, 2009, 10% interest, unsecured and due on demand			12,701			12,701
Note payable on October 1, 2009, 10% interest, unsecured and due on demand			10,658			-
Note payable on July 16, 2009, 10% interest, secured by a pledge of 500,000
shares of the Company's common stock, due 90 days following closing			100,000			-
Less: discount for value of warrants issued			(33,310)			-
Notes payable, net		$	139,747		$	62,408

 

F-16

FORCE FUELS, INC. AND SUBSIDIARY

(A Development Stage Company)

Notes to the Consolidated Financial Statements
For the Years Ended July 31, 2010 and 2009 

NOTE 7 – NOTES PAYABLE (Continued)

Above notes payable are to unrelated parties and interest expense for the fiscal year ended July 31, 2010 and 2009 was $13,816 and $2,022, respectively.  

During the fiscal year ended July 31, 2010 the Company sold $261,000 of convertible promissory notes.  As of July 31, 2010 all such notes were converted to 148,000 shares of the Company’s common stock. The shares were issued at an average price per share of $3.63. The Company recognized a loss on settlement of debt of $310,014 in connection with the issuance.

NOTE 8 – STOCKHOLDERS’ EQUITY (DEFICIT)

Common Stock

On February 14, 2009 the Company issued 60,000 shares of its Common Stock to three (3) consultants for professional services rendered, valued at $0.10 per share, or $6,000 in aggregate.

On October 1, 2009, the Company issued 1,000,000 shares of its Common Stock to the Company’s chief executive officer as a signing bonus for entering into an Employment Agreement dated October 1, 2009. The shares were valued at $0.30 per share, or $300,000 in the aggregate.

On January 28, 2010, the Company issued 1,122,366 shares to various consultants for services provided to the Company. The shares were valued at $0.30 per share, or $336,710 in the aggregate.

On March 16, 2010 and March 30, 2010 the Company issued 172,000 shares, of its common stock to various consultants for services provided to the Company. The shares were valued at $0.30 per share, or $51,600 in the aggregate.

Between March 1 and April 30, 2010 the Company issued 138,000 shares of common stock upon conversion of convertible promissory notes at an average price of $4.07 per share, or $561,613 in the aggregate.

On June 25, 2010 the Company issued 150,000 shares of common stock as an inducement to an unrelated third-party lender. The shares were valued at at $0.89 per share, or $133,500 in the aggregate.

On July 31, 2010 the Company issued 10,000 shares of common stock upon conversion of convertible promissory notes at a price of $1.00 per share, or $10,000 in the aggregate.

During the year ended July 31, 2010 the Company cancelled 3,800,000 previously issued shares of common stock. 

Stock Option Plan

The Company adopted its 2002 Non-Statutory Stock Option Plan (the “Plan”) on July 15, 2002, as amended on October 24, 2002 and filed with the Securities and Exchange Commission on Form S-8 on January 21, 2003.  The Plan provides for the granting of non-statutory stock options through 2012, to purchase up to 1,500,000 shares of its common stock, subject to adjustment for stock splits, stock dividends, recapitalizations or similar capital changes.  These may be granted to employees (including officers) and directors of the Company and certain of the Company’s consultants and advisors.

The Plan is administered by the Company’s Board of Directors which determines the grantee, number of shares, exercise price and term.  The Board of Directors also interprets the provisions of the Plan and, subject to certain limitations, may amend the Plan.

F-17

FORCE FUELS, INC. AND SUBSIDIARY

(A Development Stage Company)

Notes to the Consolidated Financial Statements
For the Years Ended July 31, 2010 and 2009 

NOTE 8 – STOCKHOLDERS’ EQUITY (DEFICIT) (Continued)

Stock Option Plan (Continued)

One million five hundred thousand (1,500,000) shares were reserved for issuance under the Plan, subject to adjustment for stock splits, stock dividends, recapitalizations or similar capital changes.  Prior to the Reverse Split, options to purchase 1,500,000 shares had already been issued and exercised in full.  Accordingly, there are no additional shares available for future grants under the Plan and no options are outstanding as of July 31, 2010 or 2009.  The number of shares issued under the Plan was 1,500,000 adjusted to 150,000 shares as a result of the Reverse Stock Split. The Company has not issued any options out of the above plan and hence, no options were outstanding as of July 31, 2010.

NOTE 9 – RELATED PARTY TRANSACTIONS

Advances from related parties

Advances from related parties at July 31, 2010 and July 31, 2009 consist of the following:

		July 31,			July 31,
		2010			2009
Advances from ICE and significant stockholders		$	-		$	333,189

The advances bear no interest and have no formal repayment terms.

NOTE 10 – 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, local and 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 properties 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 costs related to these sites will not have a material adverse affect on the Company’s net income, financial condition or liquidity in a future period.
 

F-18

FORCE FUELS, INC. AND SUBSIDIARY

(A Development Stage Company)

Notes to the Consolidated Financial Statements
For the Years Ended July 31, 2010 and 2009 

NOTE 10 – ENVIRONMENTAL AND OTHER CONTINGENCIES (Continued)

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.

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 $36,622 for its estimated asset retirement obligation as of July 31, 2010.

NOTE 11 – OIL AND GAS PROPERTIES

Oil and gas properties are stated at cost. Depletion expense for the year ended July 31, 2010 and 2009 amounted to $-0- and $-0-, respectively. Gains and losses on sales and disposals are included in the statements of operations. As of July 31, 2010 and 2009 oil and gas properties consisted of the following:

Capitalized Costs for Oil and Gas:

		July 31,			July 31,
		2010			2009
Producing Activities
Proved properties		$	1,258,292		$	-
Accumulated depletion			-			-
Net Oil and Gas Properties		$	1,258,292		$	-
		July 31,			July 31,
		2010			2009
Costs Incurred in Oil and Gas Acquisition and Development Activities
Produced properties		$	1,258,292		$	-
Accumulated depletion			133,361			-
Total		$	1,391,653		$	-

NOTE 12 – INCOME TAXES

The Company provides for income taxes under ASC 740, Accounting for Income Taxes. ASC 740 requires the use of an asset and liability approach in accounting for income taxes. 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 when these differences are expected to reverse. ASC 740 requires the reduction of deferred tax assets 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.

F-19

FORCE FUELS, INC. AND SUBSIDIARY

(A Development Stage Company)

Notes to the Consolidated Financial Statements
For the Years Ended July 31, 2010 and 2009 

NOTE 12 – INCOME TAXES (Continued)

The Company is subject to income taxes under the laws of United States of America. The provision for income taxes differs from the amounts which would be provided by applying the statutory federal income tax rate of 39% to the net loss before provision for income taxes for the following reasons:

		July 31,			July 31,
		2010			2009
Income tax expense at statutory rate		$	(794,716)		$	(155,892)
Stock based expenses			521,050			19,110
Valuation allowance			273,666			136,782
Income tax expense per books		$	-		$	-

Net deferred tax assets consist of the following components as of:

		July 31,			July 31,
		2010			2009
NOL Carryover		$	436,473		$	165,807
Valuation allowance			(436,473)			(165,807)
Net deferred tax asset		$	-		$	-

Due to the change in ownership provisions of the Income Tax laws of the United States, net operating loss carry forwards of approximately $1,119,000 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 13 – SUBSEQUENT EVENTS

Subsequent to July 31, 2010 the Company’s $100,000 note payable to Juggernaut Financial Group (“Juggernaut”) came into a state of default. As a result of the default, the Company relinquished 500,000 shares of its common stock to Juggernaut. These 500,000 shares had been issued to Juggernaut as loan collateral upon the closing of the note agreement, with the provision that Juggernaut would receive all necessary rights and privileges associated with the shares in the event of default. The note balance was not satisfied by the issuance of the 500,000 shares, hence the note, along with all related accrued interest, remains in default and due in full.

Subsequent to July 31, 2010, the Company’s $73,057 note payable to Yocca Law Group came into a state of default.

In accordance with ASC 855-10, Company management reviewed all material events through the date of this report and there are no additional subsequent events to report.  

F-20

FORCE FUELS, INC. AND SUBSIDIARY

(A Development Stage Company)
Notes to the Consolidated Financial Statements
For the Years Ended July 31, 2010 and 2009

 

SUPPLEMENTARY INFORMATION ON OIL AND GAS
DEVELOPMENT AND PRODUCING ACTIVITIES

(UNAUDITED)

The following supplemental unaudited information regarding the Company’s oil and gas activities is presented pursuant to the disclosure requirements of SFAS No. 69. The standardized measure of discounted future net cash flows is computed by applying constant prices of oil and gas to the estimated future production of proved oil and gas reserves, less estimated future expenditures (based on period-end costs) to be incurred in developing and producing the proved reserves, less estimated future income tax expenses (based on period-end statutory tax rates) to be incurred on pre-tax net cash flows less tax basis of the properties and available credits, and assuming continuation of existing economic conditions. The estimated future net cash flows are then discounted using a rate of 10 percent per year to reflect the estimated timing of the future cash flows.  All operations of the Company are located in the United States. 

(1)     Capitalized Costs Relating to Oil and Gas Producing Activities:

		July 31,			July 31,
		2010			2009
Proved leasehold costs		$	1,255,173		$	-
Costs of wells and development			138,300			-
Capitalize asset retirement obligations			(36,622)			-
Total cost of oil and gas properties		$	1,356,851		$	-
Unproved oil and gas properties		$	-		$	-
Accumulated depreciation and depletion			(4,939)			-
Net Capitalized Costs		$	1,351,912		$	-

(2)     Costs Incurred in Oil and Gas Property Acquisition, Exploration, and Development Activities:

		For the			For the
		Year Ended			Year Ended
		July 31,			July 31,
		2010			2009
Acquisition of Properties:
Proved		$	1,258,292		$	-
Unproved			-			-
Exploration costs			-			-
Development costs			-			-
Total		$	1,258,292		$	-

(3)     Results of Operations for Producing Activities:

		For the			For the
		Year Ended			Year Ended
		July 31,			July 31,
		2010			2009
Sales		$	7,451		$	-
Production costs			(25,000)			-
Depreciation and depletion			(4,939)			-
Income tax benefit			-			-
Results of operations for producing activities (excluding corporate
overhead and interest costs)		$	(22,488)		$	-

F-21

FORCE FUELS, INC. AND SUBSIDIARY

(A Development Stage Company)
Notes to the Consolidated Financial Statements
For the Years Ended July 31, 2010 and 2009

 

SUPPLEMENTARY INFORMATION ON OIL AND GAS
DEVELOPMENT AND PRODUCING ACTIVITIES (Continued)

(UNAUDITED)

(4)     Reserve Quantity Information

Our proved reserves at July 31, 2010 are set forth below:

		Oil			Gas
		(MBbls)			(MMcf)
Proved developed producing			606,447			-
Proved developed non-producing			-			-
Proved undeveloped			10,624,053			-
Total Proved, at July 31, 2010			11,230,500			-

A summary of changes in reserve quantities for the years ended July 31, 2010 and 2009 are set forth below:

		Oil			Gas
		(MBbls)			(MMcf)
Proved reserves at July 31, 2008			-			-
Revisions of previous estimates			-			-
Purchases of minerals in place			-			-
Extensions and discoveries			-			-
Production			-			-
Proved reserves at July 31, 2009			-			-
Revisions of previous estimates			-			-
Purchases of minerals in place			11,230,500			-
Extensions and discoveries			-			-
Production			-			-
Sales of minerals in place			-			-
Proved reserves at July 31, 2010			11,230,500			-

During the years ended July 31, 2010 and 2009, the Company had reserve studies and estimates prepared on its various properties.  The difficulties and uncertainties involved in estimating proved oil and gas reserves makes comparisons between companies difficult.  Estimation of reserve quantities is subject to wide fluctuations because it is dependent on judgmental interpretation of geological and geophysical data.

(5)     Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves

		July 31,			July 31,
		2010			2009
Future cash inflows		$	25,616,435		$	-
Future production costs			(5,123,287)			-
Future development costs			(7,684,931)			-
Future tax expense			(2,561,664)			-
Future net cash flows			10,246,553			-
Discounted for estimated timing of cash flows at 10%			(5,488,636)			-
Standardized measure		$	4,757,917		$	-

F-22

FORCE FUELS, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
For the Years Ended July 31, 2010 and 2009

 

SUPPLEMENTARY INFORMATION ON OIL AND GAS
DEVELOPMENT AND PRODUCING ACTIVITIES (Continued)

(UNAUDITED)

The following schedule summarizes changes in the standardized measure of discounted future net cash flow relating to proved oil and gas reserves:

		For the			For the
		Year Ended			Year Ended
		July 31,			July 31,
		2010			2009
Standardized measure, beginning of year		$	-		$	-
Extensions, discoveries and improved recovery			-			-
Revisions of previous estimates			-			-
Purchases of minerals in place			4,797,917			-
Sales of minerals in place			-			-
Net change in proces and production costs			-			-
Accretion of discount			-			-
Oil and gas sales, net of production costs			-			-
Changes in estimated future development costs			-			-
Previously estimated development cost incurred			-			-
Net change in income taxes			-			-
Change in timing of estimated future production			-			-
Standardized measure, end of year		$	4,797,917		$	-

The preceding schedules relating to proved oil and gas reserves, standardized measure of discounted future net cash flows and changes in the standardized measure of discounted future net cash flows have their foundation in engineering estimates of future net revenues that are derived from proved reserves and prepared using the prevailing economic conditions. These reserve estimates are made from evaluations conducted by independent geologists, of such properties and will be periodically reviewed based upon updated geological and production data.  Estimates of proved reserves are inherently imprecise.

Subsequent development and production of Company's reserves will necessitate revising the present estimates.  In addition, information provided in the above schedules does not provide definitive information as the results of any particular year but, rather, helps explain and demonstrate the impact of major factors affecting the Company's oil and gas producing activities.  Therefore, the Company suggests that all of the aforementioned factors concerning assumptions and concepts should be taken into consideration when reviewing and analyzing this information.
 
 

F-23

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	FORCE FUELS, INC.
Date: December 23, 2010	By:	/s/ Oscar Luppi
		Oscar Luppi
		President, Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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EXHIBIT INDEX

Exhibit No.		Description
2.1(1)		Bylaws
2.2(1)		Articles of Incorporation
2.3(2)		Certificate of Amendment to the Articles of Incorporation as filed with the Nevada Secretary of State on April 17, 2008.
2.4(3)		Certificate of Amendment to the Articles of Incorporation as filed with the Nevada Secretary of State on May 27, 2008.
10.1(4)*		2002 Stock Option Plan as adopted July 15, 2002
10.2(5)		Joint Venture Agreement by and between Force Fuels, Inc. and Ice Conversions, Inc. May 12, 2008.
10.3(6)		Assignment and Contribution Agreement by and between Force Fuels, Inc. and Ice Conversions, Inc. effective July 31, 2008.
10.4(6)*		Consulting Agreement with Lawrence Weisdorn effective May 12, 2008.
10.5(6)*		Consulting Agreement with Donald Hejmanowski effective May 12, 2008.
10.6(6)*		Employment Agreement of Lawrence Weisdorn dated October 21, 2008.
10.7(6)*		Employment Agreement of Donald Hejmanowski dated October 21, 2008.
31		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

 _____________________

* This exhibit references a Management Compensation Plan or Arrangement

(1)	Filed with the Securities and Exchange Commission in the Exhibits to Form 10-SB filed on September 9, 2002, and is incorporated by reference herein.

 

(2)	Filed with the Securities and Exchange Commission in the Exhibits to Form 8-K filed on May 06, 2008, and is incorporated by reference herein.

 

(3)	Filed with the Securities and Exchange Commission in the Exhibits to Form 8-K filed on June 16, 2008, and is incorporated by reference herein.

 

(4)	Filed with the Securities and Exchange Commission in the Exhibits to Form S-8 filed on January 21, 2003.

 

(5)	Filed with the Securities and Exchange Commission in the Exhibits to Form 8-K filed on May 27, 2008, and is incorporated by reference herein.

  

(6)	Filed with the Securities and Exchange Commission in the Exhibits to Form 10-K/A filed on December 30, 2008, and is incorporated by reference herein.

 

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