The accompanying notes are an integral part of these condensed
financial statements.
NOTE 1 - CONDENSED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by the
Company without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations, and cash flows at March 31, 2014, and
for all periods presented herein, have been made.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted. It is suggested that these financial statements be read in conjunction
with the financial statements and notes thereto included in the Company's
December 31, 2013 audited financial statements. The results of operations for
the periods ended March 31, 2014 and 2013 are not necessarily indicative of the
operating results for the full years.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These financial statements
have been prepared in accordance with generally accepted accounting principles
in the United States of America and are stated in US dollars. Because a precise
determination of many assets and liabilities is dependent upon future events,
the preparation of financial statements for a period necessarily involves the
use of estimates which have been made using careful judgment. Actual results may
differ from these estimates.
Reclassification of Financial Statement Accounts
Certain amounts in the condensed financial statements have been reclassified
to conform to the presentation adopted in the March 31, 2014 condensed financial
statements.
Use of Estimates
The preparation of financial
statements in accordance with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reportable amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Development Stage Company
The Company is considered
to be in the development stage as defined in Accounting Standards Codification
(ASC) 915 “Development Stage Entities.” The Company is devoting substantially
all of its efforts to development of business plans.
Basic Loss Per Share
Basic earnings (loss) per share
is calculated by dividing the Company’s net loss applicable to common
shareholders by the weighted average number of common shares during the period.
Diluted earnings per share is calculated by dividing the Company’s net income
available to common shareholders by the diluted weighted average number of
shares outstanding during the year. The diluted weighted average number of
shares outstanding is the basic weighted number of shares adjusted for any
potentially dilutive debt or equity. There were no dilutive or potentially
dilutive instruments outstanding as of March 31, 2014 and December 31, 2013.
Stock Issued in Exchange for Services
The valuation
of common stock issued in exchange for services is valued at an estimated fair
market value as determined by the most readily determinable value of either the
stock or services exchanged. Values of the stock are based upon other sales and
issuances of the Company’s common stock within the same general time period.
5
FormCap Corp.
(A Development Stage Company)
Notes
to the Condensed Financial Statements
March 31, 2014
(Unaudited)
Cash and Cash Equivalents
Cash equivalents are
comprised of certain highly liquid investments with original maturities of three
months or less when purchased. The Company maintains its cash in bank deposit
accounts which at times may exceed federally insured limits of $250,000. The
Company has not experienced any losses related to this concentration of risk.
Deposits did not exceed insured limits during three months ended March 31, 2014
and the year ended December 31, 2013.
Financial Instruments
For accounts receivable,
accounts payable, accrued liabilities, current portion of long-term debt and
long-term debt, the carrying amounts of these financial instruments approximates
their fair value. Unless otherwise noted, it is management’s opinion that the
Company is not exposed to significant interest, currency or credit risks arising
from these financial instruments.
Foreign Currency Translation
The Company translates
foreign currency transactions and balances to its reporting currency, United
States Dollars, in accordance with ASC 830 “Foreign Currency Matters”. Monetary
assets and liabilities are translated into the functional currency at the
exchange rate in effect at the end of the year. Non-monetary assets and
liabilities are translated at the exchange rate prevailing when the assets were
acquired or the liabilities assumed. Revenue and expenses are translated at the
rate approximating the rate of exchange on the transaction date. All exchange
gains and losses are included in the determination of net income (loss) for the
year.
Income Taxes
The Company applies ASC 740, which
requires the asset and liability method of accounting for income taxes. The
asset and liability method requires that the current or deferred tax
consequences of all events recognized in the financial statements are measured
by applying the provisions of enacted tax laws to determine the amount of taxes
payable or refundable currently or in future years. Deferred tax assets are
reviewed for recoverability and the Company records a valuation allowance to
reduce its deferred tax assets when it is more likely than not that all or some
portion of the deferred tax assets will not be recovered.
The Company adopted ASC 740, at the beginning of fiscal year
2008. This interpretation requires recognition and measurement of uncertain tax
positions using a “more-likely-than-not” approach, requiring the recognition and
measurement of uncertain tax positions. The adoption of ASC 740 had no material
impact on the Company’s financial statements.
Recent Accounting Pronouncements
Except for rules
and interpretive releases of the SEC under authority of federal securities laws
and a limited number of grandfathered standards, the FASB Accounting Standards
Codification™ (“ASC”) is the sole source of authoritative GAAP literature
recognized by the FASB and applicable to the Company. Management has reviewed
the aforementioned rules and releases and believes any effect will not have a
material impact on the Company's present or future consolidated financial
statements.
6
FormCap Corp.
(A Development Stage Company)
Notes
to the Condensed Financial Statements
March 31, 2014
(Unaudited)
NOTE 3 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles in the United States of America applicable to a
going concern which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company has not yet
established an ongoing source of revenues sufficient to cover its operating
costs and allow it to continue as a going concern. The ability of the Company to
continue as a going concern is dependent on the Company obtaining adequate
capital to fund operating losses until it becomes profitable. If the Company is
unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need,
among other things, additional capital resources. Management's plan is to obtain
such resources for the Company by obtaining capital from management and
significant shareholders sufficient to meet its minimal operating expenses and
seeking equity and/or debt financing. However management cannot provide any
assurances that the Company will be successful in accomplishing any of its
plans.
The ability of the Company to continue as a going concern is
dependent upon its ability to successfully accomplish the plans described in the
preceding paragraph and eventually secure other sources of financing and attain
profitable operations. The accompanying financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.
NOTE 4 – PROMISSORY NOTE RECEIVABLE
On June 3, 2013 the Company advanced the sum of $11,194
($11,500 Canadian Dollars) to an unrelated Canadian company. The loan is secured
by a promissory note which matures on December 31, 2014. On November 30, 2013
the borrower company repaid $1,928 ($2,000 Canadian Dollars). As at March 31,
2014, the borrower company owed the Company $8,638 ($9,500 Canadian Dollars).
The promissory note is non-interest bearing until maturity and
bears interest at 3% per annum thereafter. The Promissory note will become due
and payable if the borrower receives financing totalling $5,000,000 in aggregate
prior to the maturity date. The promissory note is convertible into common
shares of the company either in whole or in part at the option of the Company.
NOTE 5 – EXPLORATION PROPERTY LEASE
On November 19, 2013 the Company executed a Definitive
Agreement with Kerr Energy Group and Keta Oil & Gas LLC (Kerr and Keta) both
incorporated in Kansas.
Pursuant to the terms of the Agreement the Company agreed to
acquire up to 2,400 acres in Cowley County, Kansas at a cost not exceed $200 per
acre. In addition, the Company agreed to issue Kerr and Keta a total of 200,000
Rule 144 shares of the common stock of FormCap.
The Company will own 100% of the Leases (80% net revenue to
FormCap; 20% freehold royalty), and will be the operator. The Company will have
the option to purchase additional leases in Cowley County from Kerr and Keta
under an Area of Mutual Interest, the terms of which are set forth in the
Agreement. FormCap is required to drill one test well in each of the first two
years of the lease term in order to maintain its interest in the Leases.
During January 2014, Ironridge Global IV, Ltd. ("Ironridge")
purchased from Kerr and Keta the Company’s obligation in the aggregate amount of
$671,938.90 (the "Claim Amount"). Subsequently, the Company offered to settle
the Claim Amount by the issuance of unrestricted and fully tradable shares of
the Company's common stock. Ironridge accepted the Company's settlement offer,
subject to a hearing on the fairness of the settlement terms. On February 21,
2014, the Company, Ironridge and the CEO of the Company entered into a
Stipulation Order for the settlement on the terms agreed on by Ironridge and the
Company. On February 21, 2014, a California Superior Court for the County of Los
Angeles (the "State Court") held a hearing on the fairness of the Company's
settlement offer to Ironridge. Pursuant to the court order issued by the State Court on February 21, 2014, the shares of
the Company's common stock will be deemed issued in settlement of the claims
(subject to certain adjustments based on the future trading value of the stock)
when delivered to Ironridge. On February 24, 2014 the Company's transfer agent
delivered to Ironridge 10,000,000 shares of the Company's common stock. The
shares issued to Ironridge are freely tradable and exempt from registration
under the Securities Act of 1933 and the California Corporations Code. The
number of shares to be issued to Ironridge is subject to adjustment based
trading price of the Company's stock such that the value of the shares is
sufficient to cover the Claim Amount, a 10% agent fee amount and Ironridge's
reasonable legal fees and expenses ( the "Final Amount"). Under the Stipulation
Order, Ironridge may not be the beneficial owner of more than 9.99% of the
Company's outstanding shares of common stock until the Final Amount is paid.
Further Ironridge has agreed not to exercise any voting rights of the shares
issued to it nor influence or cause any change in control of the Company.
7
FormCap Corp.
(A Development Stage Company)
Notes
to the Condensed Financial Statements
March 31, 2014
(Unaudited)
On March 11, 2014 Ironridge paid Kerr and Keta $305,000 in full
and final settlement of all monies due in connection with the acquisition 2400
acres of the Cowley leases. Ironridge is obligated to provide $367,000 to the
Company to fund the drilling of two test wells on the Cowley lands.
As at March 31, 2014 the Company has capitalized $516,802
toward the acquisition of the Cowley Leases. (December 31, 2013 - $101,802)
NOTE 6 - RELATED PARTY PAYABLES
The Company from time to time has borrowed funds from or has
received services from several individuals and corporations related to the
Company for operating purposes As of March 31, 2014 the Company owed related
parties $111,500 (December 31, 2013 - $111,500). These amounts bear no interest,
are not collateralized, and are due on demand.
NOTE 7 – PROMISSORY NOTES PAYABLE
As at March 31, 2014 the Company owed $78,653 to several
unrelated third parties (December 31, 2013 - $78,653) to several third parties.
These amounts bear no interest, are not collateralized and are due on demand.
NOTE 8 – PROMISSORY NOTES PAYABLE – RELATED PARTIES
As at March 31, 2014 the Company owed $111,500 to several
related parties (December 31, 2013 - $111,500) to several third parties. These
amounts bear no interest, are not collateralized and are due on demand.
NOTE 9 – CONVERTIBLE PROMISSORY NOTES PAYABLE
On January 23, 2014, an unrelated third party paid Kerr and
Keta a further $50,000 in connection with the acquisition of the Cowley leases.
On that date the Company issued a promissory note in the amount of $50,000 to
the unrelated third party.
On February 28, 2014 the Company issued a promissory note in
the amount of $11,000 to an unrelated party. The note matures on December 31,
2015
As at March 31, 2014, the Company owed $206,790 to the holders
of the Convertible Promissory notes (December 31, 2013 - $145,790).
The promissory notes are non-interest bearing until maturity
and bear interest at 3% per annum thereafter. The Promissory notes will become
due and payable if the Company receives financing totalling $5,000,000 in
aggregate prior to the maturity date. The promissory notes are convertible into
common shares of the Company either in whole or in part at the option of the
Holders.
8
FormCap Corp.
(A Development Stage Company)
Notes
to the Condensed Financial Statements
March 31, 2014
(Unaudited)
NOTE 10 – CONVERTIBLE PROMISSORY NOTES PAYABLE – RELATED
PARTY
On January 2, 2014, a related party paid Kerr and Keta a
further $50,000 in connection with the acquisition of the Cowley leases. On that
date the Company issued a promissory note in the amount of $50,000 to the
related party.
As at March 31, 2014, the Company owed $65,000 to related party
holders of Convertible Promissory notes (December 31, 2013 - $15,000).
The promissory notes are non-interest bearing until maturity
and bear interest at 3% per annum thereafter. The Promissory notes will become
due and payable if the Company receives financing totalling $5,000,000 in
aggregate prior to the maturity date. The promissory notes are convertible into
common shares of the Company either in whole or in part at the option of the
Holder
NOTE 11 - COMMON STOCK
The Company has two classes of stock authorized as of March 31,
2014. The Company has 50,000,000 shares of preferred stock authorized with no
shares outstanding as of March 31, 2014 and December 31, 2013. The Company also
has 200,000,000 shares of common stock authorized with 102,238,238 shares issued
and outstanding as of September 30, 2013 (December 31, 2013 – 92,238,238).
During the three months ended March 31, 2014, the Company
issued 10,000,000 shares of common stock in connection with the purchase of the
Cowley leases.
The Company did not issue any shares of common stock during the
three months ended March 31, 2013.
9
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion of our financial condition and results
of operations should be read in conjunction with the financial statements and
notes thereto and the other financial information included elsewhere in this
report. Certain statements contained in this report, including, without
limitation, statements containing the words “believes,” “anticipates,” “expects”
and words of similar import, constitute “forward looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks and uncertainties.
Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including our ability
to create, sustain, manage or forecast our growth; our ability to attract and
retain key personnel; changes in our business strategy or development plans;
competition; business disruptions; adverse publicity; and international,
national and local general economic and market conditions.
Overview
The Company does not currently engage in any business
activities that provide cash flow. The Company is currently in the development
stage.
On September 30, 2013 the Company executed a Definitive
Agreement with: Kerr Energy Group and Keta Oil & Gas LLC (Kerr and Keta)
both incorporated in Wichita, Kansas.
Pursuant to the terms of the Agreement the Company paid Kerr
and Keta a non-refundable deposit in the amount of $25,000 (the “Deposit”) to be
applied to the purchase price of oil leases to be purchased by Formcap, in
Cowley County Kansas. The Company will also issue Kerr and Keta a total of
200,000 Rule 144 shares of FormCap.
In addition, the Company agreed to pay Kerr and Keta two
hundred dollars ($200.00) per acre for up to 1,500 acres of Leases, at total
cost not to exceed $300,000 within 30 days of execution of the Agreement,
subject to final due diligence by the Company. The Company will own 100% of the
Leases (80% net revenue to FormCap; 20% freehold royalty), and will be the
operator. The Company will have the option to purchase additional leases in
Cowley County from Kerr and Keta under an Area of Mutual Interest, the terms of
which are set forth in the Agreement. FormCap is required to drill one well in
each of the first two years of the lease term to maintain its interest in the
Leases.
The Company will also have the option to participate in the
drilling of up to six exploration or development wells on lands currently owned
by Keta and Kerr under terms set out in the agreement.
On October 28, 2013 the Company, and Kerr and Keta agreed to
extend the closing date for the purchase of the oil exploration leases to
January 15, 2014. The Company is to pay Kerr and Keta $50,000 on or before
November 15, 2013, $50,000 on or before December 15 2013 and the remaining
balance to a maximum of $200,000 by January 14, 2014. These funds to be held in
trust and applied toward the acquisition purchase price payable on January 15,
2014. In addition, the Company has agreed to issue 200,000 Rule 144 shares in
the company to Kerr and Keta.
On November 7, 2013 the Board of Directors approved the
issuance of 200,000 Rule 144 shares to Kerr and Keta.
During January 2014, Ironridge Global IV, Ltd. ("Ironridge")
purchased from Kerr and Keta the Company’s obligation in the aggregate amount of
$671,938.90 (the "Claim Amount"). Subsequently, the Company offered to settle
the Claim Amount by the issuance of unrestricted and fully tradable shares of
the Company's common stock. Ironridge accepted the Company's settlement offer,
subject to a hearing on the fairness of the settlement terms. On February 21,
2014, the Company, Ironridge and the CEO of the Company entered into a
Stipulation Order for the settlement on the terms agreed on by Ironridge and the
Company. On February 21, 2014, a California Superior Court for the County of Los
Angeles (the "State Court") held a hearing on the fairness of the Company's
settlement offer to Ironridge. Pursuant to the court order issued by the State
Court on February 21, 2014, the shares of the Company's common stock will be
deemed issued in settlement of the claims (subject to certain adjustments based
on the future trading value of the stock) when delivered to Ironridge. On
February 24, 2014 the Company's transfer agent delivered to Ironridge 10,000,000
shares of the Company's common stock. The shares issued to Ironridge are freely
tradable and exempt from registration under the Securities Act of 1933 and the
California Corporations Code. The number of shares to be issued to Ironridge is
subject to adjustment based trading price of the Company's stock such that the
value of the shares is sufficient to cover the Claim Amount, a 10% agent fee amount and Ironridge's reasonable legal fees and
expenses ( the "Final Amount"). Under the Stipulation Order, Ironridge may not
be the beneficial owner of more than 9.99% of the Company's outstanding shares
of common stock until the Final Amount is paid. Further Ironridge has agreed not
to exercise any voting rights of the shares issued to it nor influence or cause
any change in control of the Company.
10
On March 11, 2014 Ironridge paid Kerr and Keta $305,000 in full
and final settlement of all monies due in connection with the acquisition 2400
acres of the Cowley leases. Ironridge is obligated to provide $367,000 to the
Company to fund the drilling of two test wells on the Cowley lands.
Results of Operations for the Three Months Ended March 31,
2014 and 2013.
Revenues. There was no revenue for the three months ended March
31, 2014 and 2013, respectively.
Operating Expenses. For the three months ended March 31, 2014,
we had total operating expenses of $17,715, an increase of $7,581 as compared
with operating expenses of $10,134 the three months ended March 31, 2013.
Accounting and Audit and review fees amounted to $15,000 for
the three ended March 31, 2014, as compared with $8,000 for the three ended
March 31, 2014 as a result of audit fees in respect of 2013 not accrued at the
year end, expensed in the period under review and adjustments to accruals.
Filing and Transfer agents’ expense decreased by $69 from
$2,082 during the three months ended March 31, 2013 to $2,013 for the three
months ended March 31, 2014. The decrease resulted from result of an accrual in
respect of 2012 year-end filing fees and corporate activity during the period
under review.
Losses on foreign exchange transactions amounted to $648 for
the three months ended March 31, 2014, as compared with a loss of $16 for the
three months ended March 31, 2013. These losses arose as a result of
fluctuations in the exchange rates between the US Dollar and foreign currencies
Interest Expense: There was no interest expense for the three
March 31, 2014 and 2013 as the liabilities of the Company bear no interest.
Loss on settlement of Debt: During the three months ended March
31, 2014, the Company recognized a loss in the amount of $1,638,000 in
connection with the Ironrridge transaction (three months ended March 31, 2013 -
$Nil)
Net Loss: The net loss for the three months ended March 31,
2014 was $1,655,715, as compared with $10,134 for the three months ended March
31, 2014, an increase of $1,645,581.
Liquidity and Capital Resources
As at March 31, 2014, our current assets were $382,460
(December 31, 2013 - $10,176) and our current liabilities were $720,239
(December 31, 2013 - $597,240), resulting in a working capital deficit of
$337,779 as at March 31, 2014, as compared with a working capital deficit of
$577,064 at December 31, 2013.
Total Stockholders’ Deficit decreased from $475,262 at December
31, 2013 to a Total Stockholders’ Surplus of $179,023 as at March 31, 2014.
Cash Flows Generated by Operating Activities
For the three months ended March 31, 2014, net cash flows
generated by operating activities was $5,088, consisting of cash expended for
operations of $17,087, offset by an increase of $11,999 in Accounts Payable and
Accrued Liabilities.
Cash Flow Provided by Financing Activities
We have financed our operations primarily from either advances
from related parties or the issuance of equity and debt instruments. During the
three months ended March 2014, we issued convertible promissory notes to lenders
in the amount of $11,000 (three months ended March 2013 - $Nil)
11
We expect that working capital requirements will continue to be
funded through further issuances of securities.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or
are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to investors.
Recent Accounting Pronouncements
For the three month period ended March 31, 2014, there were no
accounting standards or interpretations issued that are expected to have a
material impact on our financial position, operations or cash flows.
