FormCap Corp.
(A Development Stage Company)
Condensed Statements of Cash Flows (Continued)
(Unaudited)
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For the Six Months Ended June 30,
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From Inception on April 10, 1991 to June 30,
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2014
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2013
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2014
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Net Cash Used in Operating and Investing Activities
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$
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(25,576
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)
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(34,595
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)
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(6,060,048
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)
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CASH FLOWS FROM FINANCING ACTIVITIES
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Proceeds from related party payables
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2,065,177
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Repayments of related party payables
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21,000
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(616,012
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)
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Proceeds from notes payable
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7,000
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34,967
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938,919
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Repayment of notes payable
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Proceeds from the sale of preferred stock
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3,000
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Proceeds from Convertible notes payable
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(3000
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)
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73,790
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Net Cash Provided by Financing Activities
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25,000
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34,967
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6,167,116
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NET INCREASE (DECREASE) IN CASH
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(576
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)
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372
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334
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CASH AT BEGINNING OF PERIOD
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910
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48
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-
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CASH AT END OF PERIOD
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$
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334
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$
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420
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$
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334
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
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CASH PAID FOR:
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Interest
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$
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-
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$
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-
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$
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12,660
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NON CASH FINANCING ACTIVITIES:
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Common stock issued for rounding shares
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$
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-
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$
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-
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$
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12
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Common stock issued for prepaid expenses
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$
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-
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$
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-
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$
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280,000
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Common stock issued for purchase of oil and gas leases
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$
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1,638,000
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$
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-
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$
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1,658,000
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Conversion of related party payables to common stock
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$
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-
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$
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-
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$
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3,984,999
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Extinguishment of related party notes payable and Accounts Payable
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$
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-
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$
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-
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$
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2,699,000
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Notes Payable Issued for Oil and Gas Lease
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$
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-
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$
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-
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$
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175,000
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The accompanying notes are an integral part of these condensed financial statements.
FormCap Corp.
(A Development Stage Company)
Notes to the Condensed Financial Statements
June 30, 2014
(Unaudited)
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 June 30, 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 June 30, 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 June 30, 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 June 30, 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.
FormCap Corp.
(A Development Stage Company)
Notes to the Condensed Financial Statements
June 30, 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 and six months ended June 30, 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.
FormCap Corp.
(A Development Stage Company)
Notes to the Condensed Financial Statements
June 30, 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 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. As at June 30, 2014, the borrower company owed the Company $8,902.
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.
FormCap Corp.
(A Development Stage Company)
Notes to the Condensed Financial Statements
June 30, 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 June 30, 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 June 30, 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 June 30, 2014 the Company owed $75,653 to several unrelated third parties (December 31, 2013 - $78,653). These amounts bear no interest, are not collateralized and are due on demand.
NOTE 8 - PROMISSORY NOTES PAYABLE – RELATED PARTIES
As at June 30, 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 June 30, 2014, the Company owed $182,800 to the holders of the Convertible Promissory notes (December 31, 2013 - $111,800
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.
FormCap Corp.
(A Development Stage Company)
Notes to the Condensed Financial Statements
June 30, 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.
On May 19, 2014 a related party paid certain creditors $7,000. On that date the Company issued a promissory note in the amount of $7,000 to the related party.
As at June 30, 2014, the Company owed $105,990 to related party holders of Convertible Promissory notes (December 31, 2013 - $48,990)
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 June 30, 2014. The Company has 50,000,000 shares of preferred stock authorized with no shares outstanding as of June 30, 2014 and December 31, 2013. The Company also has 200,000,000 shares of common stock authorized with 10,229,346 shares issued and outstanding as of June 30, 2014 (December 31, 2013 – 9,823,824)
On July 31, 2014, the Company effected a 1 for 10 reverse stock split. All references in these financial statements to number of common shares issued and outstanding, price per share and weighted average number of common shares have been adjusted to reflect the stock split on a retroactive basis, unless otherwise noted. The Company’s authorized preferred stock and authorized common stock remain unchanged.
During the six months ended June 30, 2014, the Company issued 1,000,000 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 month periods ended June 30, 2014 and 2013, respectively.
NOTE 12 - SUBSEQUENT EVENTS
On May 23, 2014 a majority of the shareholders consented to a reverse stock split in the ratio of 1 new share for every 10 old shares held by shareholders. The reverse stock split became effective on July 31, 2014.