SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005
-----------------
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from _________________ to __________________
Commission file number: 001-31546
FOOTHILLS RESOURCES, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Nevada 98-0339560
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Canadiana Lodge, Wellfield Close, Coad's Green
Launceston, Cornwall, England, PL15 7LR
----------------------------------------------
(Address of principal executive offices)
01566 782 199
--------------------------------------------------
Registrant's telephone number, including area code
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.001
------------------------------
(Title of Class)
1
Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. [ ] Note - Checking the box above will not relieve
any registrant required to file reports pursuant to Section 13 or 15(d) of the
Exchange Act from their obligations under those Sections.
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 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
------------ -------------
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB.
Yes X No
------------ -------------
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [ X ] No [ ]
State issuer's revenues for its most recent fiscal year: Nil
----------------------
State 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 sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.)
$55,800 as at March 15, 2006
-----------------------------
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
39,356,189 on March 15, 2006
----------------------------
2
TABLE OF CONTENTS
Page
PART I
ITEM 1: DESCRIPTION OF BUSINESS............................................4
ITEM 2: DESCRIPTION OF PROPERTY............................................6
ITEM 3: LEGAL PROCEEDINGS..................................................6
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................6
PART II
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...........6
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION..........7
ITEM 7: FINANCIAL STATEMENTS...............................................7
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES..................................21
PART III
ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS......22
ITEM 10: EXECUTIVE COMPENSATION...........................................22
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...23
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................23
PART IV
ITEM 13: EXHIBITS AND REPORTS.............................................24
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES ......................... 24
3
PART I
ITEM 1: DESCRIPTION OF BUSINESS
In General
We are a pre-exploration stage company. In 2001, we acquired a mining lease on a
total of five unpatented lode mineral claims property located in the State of
Nevada. During the year, the owners of these claims terminated the lease
agreement due to our failure to make a required lease payment. Management
continues to review other potential resource and non-resource assets for
acquisition.
Employees
We have no employees as of the date of this annual report.
Research and Development Expenditures
We have not incurred any exploration expenditures to date. We have not incurred
any other research or development expenditures since our incorporation.
Subsidiaries
We do not have any subsidiaries.
Patents and Trademarks
We do not own, either legally or beneficially, any patents or trademarks.
Risk Factors
In addition to the other information in this current report, the following
factors should be carefully considered in evaluating our business and prospects:
IF WE DO NOT OBTAIN ADDITIONAL FINANCING, OUR BUSINESS WILL FAIL.
Our current operating funds are less than necessary in order for us to identify
and acquire another asset and to complete any subsequent business plan. As of
December 31, 2005, we had cash in the amount of $3,188. We currently do not have
any operations and we have no income.
We will require additional financing in order to sustain our business
operations. We do not currently have any arrangements for financing and we can
provide no assurance to investors that we will be able to find or obtain such
financing on acceptable terms if required. The most likely source of future
funds presently available to us is through the sale of equity securities. Any
sale of equity securities will result in dilution to existing shareholders.
4
WE MAY NOT BE ABLE TO OPERATE AS A GOING CONCERN AND OUR BUSINESS MAY FAIL.
The Independent Auditor's Report to our audited financial statements for the
fiscal year ended December 31, 2005, indicates that there are a number of
factors that raise substantial doubt about our ability to continue as a going
concern. Such factors identified in the report are: we are in a net loss
position; we have not attained profitable operations; and we are dependent upon
obtaining adequate financing to fulfil our exploration activities. If we are not
able to continue as a going concern, it is likely investors will lose their
investments.
BECAUSE OUR SOLE DIRECTOR OWNS 86.7% OF OUR OUTSTANDING COMMON STOCK, HE COULD
MAKE AND CONTROL CORPORATE DECISIONS THAT MAY BE DISADVANTAGEOUS TO MINORITY
SHAREHOLDERS.
Our sole officer and director, Mr. J. Earl Terris, owns approximately 86.7% of
the outstanding shares of our common stock. Accordingly, he will have a
significant influence in determining the outcome of all corporate transactions
or other matters, including mergers, consolidations and the sale of all or
substantially all of our assets, and also the power to prevent or cause a change
in control. The interests of our director may differ from the interests of the
other stockholders and thus result in corporate decisions that are
disadvantageous to other shareholders.
BECAUSE OUR PRESIDENT HAS OTHER BUSINESS INTERESTS, HE MAY NOT BE ABLE OR
WILLING TO DEVOTE A SUFFICIENT AMOUNT OF TIME TO OUR BUSINESS OPERATIONS,
CAUSING OUR BUSINESS TO FAIL.
Our president, sole officer and director, Mr. Terris is not bound to spend a
minimum amount of his business time on business management services for our
company. While Mr. Terris presently possesses adequate time to attend to our
interests, it is possible that the demands on Mr. Terris from his other
obligations could increase with the result that he would no longer be able to
devote sufficient time to the management of our business. In addition, Mr.
Terris may not possess sufficient time for our business if the demands of
managing our business increased substantially beyond current levels.
OUR STOCK PRICE WILL LIKELY BE VOLATILE.
We anticipate that the market price of our common stock will be subject to wide
fluctuations in response to several factors, including:
(1) actual or anticipated variations in our results of operations; (2) our
ability or inability to generate new revenues; (3) increased competition; and
(4) conditions and trends in the mineral exploration industry.
Further, our stock price may be affected by factors that are unrelated or
disproportionate to our operating performance. These market fluctuations, as
well as general economic, political and market conditions, such as recessions,
interest rates or international currency fluctuations may adversely affect the
market price of our common stock.
5
Forward-Looking Statements
This Form 10-KSB contains forward-looking statements that involve risks and
uncertainties. We use words such as anticipate, believe, plan, expect, future,
intend and similar expressions to identify such forward-looking statements. You
should not place too much reliance on these forward-looking statements. Our
actual results are likely to differ materially from those anticipated in these
forward-looking statements for many reasons, including the risks faced by us
described in the above "Risk Factors" section and elsewhere in this document.
ITEM 2: DESCRIPTION OF PROPERTY
Our executive offices are located at Canadiana Lodge, Wellfield Close, Coad's
Green Launceston, Cornwall, England. Our president, J. Earl Terris provided
principal executive office space and telephone service free of charge until June
10, 2004. Effective July 1, 2004, the Company was charged $500 per month. The
costs associated with the use of the telephone and mailing address were deemed
by management to be reasonable. Effective April 1, 2005, the president provided
certain administrative services at no charge to the Company. Accordingly, the
fair value for these services has been recorded as contributed surplus.
Effective August 1, 2005, the president started to charge $2,500 per month for
his administrative services.
ITEM 3: LEGAL PROCEEDINGS
There are no legal proceedings pending or threatened against us.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of our 2005 fiscal year, through the solicitation of proxies or otherwise.
PART II
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
While our shares of common stock have been quoted for trading on the OTC
Bulletin Board since December 23, 2004, there have not been any trades of our
stock through its facilities since that date.
We have 13 shareholders of record as at the date of this annual report.
Dividends
There are no restrictions in our articles of incorporation or bylaws that
prevent us from declaring dividends. The Nevada Revised Statutes, however, do
prohibit us from declaring dividends where, after giving effect to the
distribution of the dividend:
1. we would not be able to pay our debts as they become due in the usual
course of business; or
6
2. our total assets would be less than the sum of our total
liabilities plus the amount that would be needed to satisfy the rights
of shareholders who have preferential rights superior to those
receiving the distribution.
We have not declared any dividends, and we do not plan to declare any
dividends in the foreseeable future.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Plan of Operation
Our plan of operation for the twelve months following the date of this report is
to review other potential resource and non-resource assets for acquisition. We
anticipate spending the following over the next 12 months on administrative
fees:
* $20,000 on legal fees
* $18,000 on accounting and audit fees
* $2,000 on EDGAR filing fees
* $1,000 on transfer agent fees
* $42,000 on general administration costs
Total expenditures over the next 12 months, therefore, are expected to be
approximately $83,000.
We currently have nominal cash on hand and cannot satisfy our cash requirements
without raising additional funds. We anticipate that additional funding will be
required in the form of equity financing from the sale of our common stock.
However, we cannot provide investors with any assurance that we will be able to
raise sufficient funding from the sale of our common stock to fund both phases
of the exploration program. We do not have any arrangements in place for any
future equity financing.
Results of Operations For the Year Ended December 31, 2005
We incurred a net loss of $331,841 for the year-ended December 31, 2005, as
compared to a loss of $30,501 in the same period in 2004. The increase in net
loss was primarily due to an increase in legal fees in the amount of $280,100
primarily related to an acquisition that did not materialize. In addition,
management fees to a private company owned by Mr. J. Earl Terris, our sole
officer and director, increased by $13,500.
During fiscal year 2005, we incurred accounting fees of $18,346 (2004: $6,886),
management fees of $19,500 (2004: $6,000), resource property costs of $Nil
(2004: $7,671), and transfer agent fees of $4,042 (2004: $3,577). At year-end,
we had cash on hand of $3,188. Our liabilities at the same date was $325,599,
which consisted of accounts payable of $10,048, due to related party of $2,500
and loans and accrued interest of $313,051.
ITEM 7: FINANCIAL STATEMENTS
7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders,
Foothills Resources, Inc.
We have audited the accompanying balance sheets of Foothills Resources, Inc. (A
Pre-exploration Stage Company) as of December 31, 2005 and 2004 and the
statements of operations, stockholders' equity (deficiency) and cash flows for
each of the years ended December 31, 2005 and 2004 and the period November 17,
2000 (Date of Inception) to December 31, 2005. 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.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform an 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
audits provide a reasonable basis for our opinion.
In our opinion, these financial statements referred to above present fairly, in
all material respects, the financial position of Foothills Resources, Inc. as of
December 31, 2005 and 2004 and the results of its operations and its cash flows
for each of the years ended December 31, 2005 and 2004 and the period from
November 17, 2000 (Date of Inception) to December 31, 2005, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements referred to above have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the financial statements, the Company is in the pre-exploration stage, and
has no established source of revenue and is dependent on its ability to raise
capital from shareholders or other sources to sustain operations. These factors,
along with other matters as set forth in Note 1, raise substantial doubt that
the Company will be able to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Vancouver, Canada "AMISANO HANSON"
January 31, 2006, except as to Note 11, which is Chartered Accountants
as of February 15, 2006
8
FOOTHILLS RESOURCES, INC.
(A Pre-exploration Stage Company)
BALANCE SHEETS
December 31, 2005 and 2004
(Stated in US Dollars)
ASSETS 2005 2004
------ ---- ----
Current
Cash $ 3,188 $ 3,472
================= =================
LIABILITIES
Current
Accounts payable and accrued liabilities - Notes 3, 4 and 7 $ 10,048 $ 18,197
Due to related party - Notes 3 and 7 2,500 38,963
Loans payable - Note 4 313,051 -
----------------- -----------------
325,599 57,160
----------------- -----------------
STOCKHOLDERS' DEFICIENCY
Preferred stock, $0.001 par value
1,000,000 shares authorized, none outstanding
Common stock, $0.001 par value
100,000,000 shares authorized
39,356,189 (2004: 6,426,077) shares outstanding - Note 3 39,356 6,426
Additional paid-in capital - Note 7 104,562 74,374
Deficit accumulated during the pre-exploration stage (466,329) (134,488)
----------------- ----------------
(322,411) (53,688)
----------------- ----------------
$ 3,188 $ 3,472
================= ================
Nature and Continuance of Operations - Note 1
Commitments - Note 5
Subsequent Event - Note 11
SEE ACCOMPANYING NOTES
9
FOOTHILLS RESOURCES, INC.
(A Pre-exploration Stage Company)
STATEMENTS OF OPERATIONS
for the years ended December 31, 2005 and 2004
and for the period November 17, 2000 (Date of Inception) to
December 31, 2005
(Stated in US Dollars)
November 17, 2000
Years ended (Date of Inception)
December 31, to December 31,
2005 2004 2005
---- ---- ----
Expenses
Accounting and audit fees $ 18,346 $ 6,886 $ 46,717
Bank charges 195 367 1,485
Consulting fees - - 5,000
Deferred acquisition costs written off - Note 6 280,100 - 280,100
Interest - Note 4 6,658 - 6,504
Legal (recovery) (3,000) 3,000 38,227
Management fees - Notes 3 and 7 19,500 6,000 43,000
Office and miscellaneous - Notes 3 and 7 6,000 3,000 9,893
Mineral property costs - 7,671 21,725
Transfer agent and filing fees 4,042 3,577 12,966
Travel - - 712
--------------- --------------- ------------------
Net loss for the period $ (331,841) $ (30,501) $ (466,329)
=============== =============== ==================
Basic loss per share $ (0.01) $ (0.00)
============== ===============
Weighted Average Number of Shares Outstanding 35,566,972 6,426,077
=============== ===============
SEE ACCOMPANYING NOTES
10
FOOTHILLS RESOURCES, INC.
(A Pre-exploration Stage Company)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 2005 and 2004
and for the period November 17, 2000 (Date of Inception) to
December 31, 2005
(Stated in US Dollars)
November 17, 2000
Years ended (Date of Inception)
December 31, to December 31,
2005 2004 2005
---- ---- ----
Cash Flows used in Operating Activities
Net loss for the period $ (331,841) $ (30,501) $ (466,329)
Add item not affecting cash
Non-cash administrative expenses 8,500 - 8,500
Deferred acquisition costs written off 280,100 - 280,100
Changes in non-cash working capital items
related to operations:
Prepaid expenses - 200 -
Accounts payable and accrued liabilities 5,351 10,820 23,548
--------------- --------------- ------------------
(37,890) (19,481) (154,181)
--------------- --------------- ------------------
Cash Flows used in Investing Activity
Deferred acquisition costs (280,100) - (280,100)
--------------- --------------- ------------------
Cash Flows from Financing Activities
Capital stock issued - - 80,800
Increase (decrease) in due to related party 4,655 22,272 43,618
Increase in loans payable 313,051 - 313,051
--------------- --------------- ------------------
317,706 22,272 437,469
--------------- --------------- ------------------
Increase (decrease) in cash during the period (284) 2,791 3,188
Cash, beginning of the period 3,472 681 -
--------------- --------------- ------------------
Cash, end of the period $ 3,188 $ 3,472 $ 3,188
=============== =============== ==================
Non-Cash Transactions - Note 7
SEE ACCOMPANYING NOTES
11
FOOTHILLS RESOURCES, INC.
(A Pre-exploration Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
for the period November 17, 2000 (Date of Incorporation) to
December 31, 2005
(Stated in US Dollars)
Deficit
Accumulated
Common Shares Additional During the
------------------------ Paid-in Subscriptions Pre-Exploration
Number Par Value Capital Received Stage Total
------ --------- ------- -------- ----- -----
Capital stock issued for cash - at $0.021 672,715 $ 673 $ 13,627 $ - $ - $ 14,300
Net loss for the period - - - - (4,927) (4,927)
---------- ----------- ---------- -------- --------- -----------
Balance as at December 31, 2000 672,715 673 13,627 - (4,927) 9,373
Capital stock issued for cash - at $0.021 503,360 503 10,197 - - 10,700
Net loss for the year ended December 31, 2001 - - - - (44,243) (44,243)
Subscriptions received - - - 5,000 - 5,000
---------- ----------- ---------- -------- --------- -----------
Balance as at December 31, 2001 1,176,075 1,176 23,824 5,000 (49,170) (19,170)
Subscriptions converted - - - (5,000) - (5,000)
Capital stock issued for cash - at $0.011 5,250,001 5,250 50,550 - - 55,800
Net loss for the year ended December 31, 2002 - - - - (41,883) (41,883)
---------- ----------- ---------- -------- --------- -----------
Balance as at December 31, 2002 6,426,076 6,426 74,374 - (91,053) (10,253)
Continued
12
FOOTHILLS RESOURCES, INC.
(A Pre-exploration Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
for the period November 17, 2000 (Date of Incorporation) to
December 31, 2005
(Stated in US Dollars)
Deficit
Accumulated
Common Shares Additional During the
------------------------ Paid-in Subscriptions Pre-Exploration
Number Par Value Capital Received Stage Total
------ --------- ------- -------- ----- -----
Net loss for the year ended December 31, 2003 - - - - (12,934) (12,934)
---------- ----------- ---------- -------- --------- -----------
Balance as at December 31, 2003 6,426,076 6,426 74,374 - (103,987) (23,187)
Net loss for the year ended December 31, 2004 - - - - (30,501) (30,501)
---------- ----------- ---------- -------- --------- -----------
Balance as at December 31, 2004 6,426,076 6,426 74,374 - (134,488) (53,688)
Capital stock issued for settlement
of debts - at $0.0016 32,930,113 32,930 21,688 - - 54,618
Capital contribution - Note 3 - - 8,500 - - 8,500
Net loss for the year ended December 31, 2005 - - - - (331,841) (331,841)
---------- ----------- ---------- -------- --------- -----------
Balance as at December 31, 2005 39,356,189 $ 39,356 $ 104,562 $ - $ (466,329) $ (322,411)
========== =========== ========== ======== =========== =============
By a director's resolution dated April 20, 2005 and effective on that date, the
Company declared a forward stock split and increased its authorized and issued
common shares on a 4.704301 for 1 basis. The number of shares and allocation
between par value and additional paid-in capital has been restated to give
retroactive effect to the forward stock split.
SEE ACCOMPANYING NOTES
13
FOOTHILLS RESOURCES, INC.
(A Pre-exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2005 and 2004
(Stated in US Dollars)
Note 1 Nature and Continuance of Operations - Notes 6 and 11
------------------------------------
The Company is in the pre-exploration stage. During the year ended
December 31, 2001, the Company acquired a mining lease on a total
of five unpatented lode mineral claims property located in the
State of Nevada. During the year ended December 31, 2005, the
Company decided to abandon the property and terminate the claims.
The Company continues to review other potential resource and
non-resource assets for acquisition.
These financial statements have been prepared in accordance with
generally accepted accounting principles applicable to a going
concern, which assumes that the Company will be able to meet its
obligations and continue its operations for its next fiscal year.
Realization values may be substantially different from carrying
values as shown and these financial statements do not give effect
to adjustments that would be necessary to the carrying values and
classification of assets and liabilities should the Company be
unable to continue as a going concern. At December 31, 2005, the
Company had not yet achieved profitable operations, has
accumulated losses of $466,329 since its inception, has a working
capital deficiency of $322,411 and expects to incur further losses
in the development of its business, all of which casts substantial
doubt about the Company's ability to continue as a going concern.
The Company's ability to continue as a going concern is dependent
upon its ability to generate future profitable operations and/or
to obtain the necessary financing to meet its obligations and
repay its liabilities arising from normal business operations when
they come due. Management has no formal plan in place to address
this concern but considers that the Company will be able to obtain
additional funds by equity financing and/or related party
advances, however there is no assurance of additional funding
being available.
The Company was incorporated in the State of Nevada, United States
of America on November 17, 2000.
Note 2 Summary of Significant Accounting Policies
------------------------------------------
The financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in the
United States of America. 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
judgement. Actual results may vary from these estimates.
The financial statements have, in management's opinion, been
properly prepared within the framework of the significant
accounting policies summarized below:
14
Note 2 Summary of Significant Accounting Policies - (cont'd)
------------------------------------------
Pre-exploration Stage Company
-----------------------------
The Company complies with Financial Accounting Standard Board
Statement No. 7 and The Securities and Exchange Commission Act
Guide 7 for its characterization of the Company as pre-exploration
stage.
Mineral Lease
-------------
Costs of lease acquisition, exploration, carrying and retaining
unproven mineral lease properties are expensed as incurred.
Environmental Costs
-------------------
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that relate
to an existing condition caused by past operations, and which do
not contribute to current or future revenue generation, are
expensed. Liabilities are recorded when environmental assessments
and/or remedial efforts are probable, and the cost can be
reasonably estimated. Generally, the timing of these accruals
coincides with the earlier of completion of a feasibility study or
the Company's commitments to plan of action based on the then
known facts.
Income Taxes
------------
The Company uses the liability method of accounting for income
taxes pursuant to Statement of Financial Accounting Standards
("FAS") No. 109 "Accounting for Income Taxes". Under the assets
and liability method of FAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial
statements carrying amounts of existing assets and liabilities and
their respective tax bases. 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.
Basic Loss Per Share
--------------------
The Company reports basic loss per share in accordance with FAS
No. 128, "Earnings Per Share". Basic loss per share is computed
using the weighted average number of shares outstanding during the
year.
15
Note 2 Summary of Significant Accounting Policies - (cont'd)
------------------------------------------
Financial Instruments
---------------------
The carrying value of cash, accounts payable and accrued
liabilities, due to related party and loans payable approximates
fair value because of the short maturity of these instruments.
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.
New Accounting Standards
------------------------
Management does not believe that any recently issued, but not yet
effective accounting standards if currently adopted could have a
material effect on the accompanying financial statements.
Note 3 Related Party Transactions - Note 6
--------------------------
The Company was charged the following by a director of the
Company:
November 17, 2000
(Date of Inception) to
December 31, December 31,
2005 2004 2005
---- ---- ----
Management fees $ 19,500 $ 6,000 $ 25,500
Office and miscellaneous 6,000 3,000 9,000
-------------- ----------- ---------------
$ 25,500 $ 9,000 $ 34,500
============== =========== ===============
These charges were measured by the exchange amount which is the
amount agreed upon by the transacting parties.
During the year ended December 31, 2005, the Company incurred
management costs and office and miscellaneous totalling $25,500
with respect to services provided by the President of the Company.
Of these services, $8,500 was contributed by the President of the
Company.
Included in accounts payable at December 31, 2005 is $Nil (2004:
$9,000) consisting of unpaid management fees and rent due to a
company with a common director.
16
Note 3 Related Party Transactions - Note 6 - (cont'd)
--------------------------
The amount due to related party, a company with a common director,
consists of unpaid advances. The amount due is unsecured,
non-interest bearing and has no specific terms for repayment.
During the year ended December 31, 2005, the Company issued
32,930,113 common shares to settle $54,618 in accounts payable and
amounts due to a related party. These amounts were due to a
company with a common director.
Note 4 Loans Payable
-------------
2005 2004
---- ----
Unsecured, non-interest bearing and having no specific
terms for repayment $ 6,393 $ -
--------------- ---------------
Promissory note, unsecured, bears interest at 10% per
annum and is due October 11, 2006 300,000 -
Accrued interest 6,658 -
--------------- ---------------
306,658 -
--------------- ---------------
$ 313,051 $ -
=============== ===============
Note 5 Commitments
-----------
Exploration Lease
By a lease agreement effective March 1, 2001 and amended February
22, 2002, September 30, 2002, December 1, 2002, March 28, 2003 and
January 1, 2004 the Company was granted the exclusive right to
explore, develop and mine the Golden Cross resource property
located in White Pine County of the State of Nevada. The term of
the lease was for 20 years, renewable for an additional 20 years
so long as conditions of the lease are met.
The Company was to pay a royalty of 3% of the net smelter returns
from all production. In respect to this royalty, the Company was
required to pay minimum advance royalty payments. As at December
31, 2004, the Company had paid $17,500 in advance royalty payments
and was required to pay $10,000, which was due January 1, 2005.
This payment was not made and consequently during the year ended
December 31, 2005, management of the Company decided to abandon
the property and terminate the claims.
17
Note 6 Deferred Acquisition Costs
--------------------------
During the year ended December 31, 2005, the Company incurred
legal fees of $280,025 in connection with the due diligence of a
business opportunity. Management of the Company decided not to
pursue this opportunity and has written-off the deferred costs
totalling $280,025.
Note 7 Non-cash Transactions
---------------------
Investing and financing activities that do not have a direct
impact on current cash flows are excluded from the statements.
During the year ended December 31, 2005, the Company issued
32,930,113 common shares at $0.0016 per share as consideration for
settlement of $13,500 in accounts payable and $41,118 in amounts
due to a related party. These amounts were due to a company
controlled by the President of the Company.
The president of the Company has provided certain administrative
services at no charge to the Company. The fair value for these
services has been recorded as additional paid-in capital as
follows:
November 17, 2000
Year ended (Date of Inception) to
December 31, December 31,
2005 2004 2005
---- ---- ----
Management fees $ 4,000 $ - $ 4,000
Office and miscellaneous 4,500 - 4,500
-------------- ------------- ---------------------
$ 8,500 $ - $ 8,500
============== ============= =====================
These transactions were excluded from the statements of cash flow.
Note 8 Deferred Tax Assets
-------------------
The following table summarizes the significant components of the
Company's deferred tax assets:
Total Total
2005 2004
---- ----
Deferred Tax Assets
Non-capital loss carryforward $ 159,094 $ 35,700
Less valuation allowance (159,094) (35,700)
-------------- --------------
$ - $ -
============== ==============
18
Note 8 Deferred Tax Assets - (cont'd)
-------------------
The amount taken into income as deferred tax assets must reflect
that portion of the income tax loss carryforwards that is more
likely than not to be realized from future operations. The Company
has chosen to provide an allowance of 100% against all available
income tax loss carryforwards, regardless of their time of expiry.
Note 9 Income Taxes
------------
No provision for income taxes has been provided for in these
financial statements due to the net loss. At December 31, 2005 the
Company has net operating loss carryforwards, which expire
commencing in 2020, totalling approximately $466,239, the benefit
of which has not been recorded in the financial statements.
Note 10 Interest Risk
-------------
Loans payable bear fixed interest rates for $300,000 of the
$313,051 loans payable, which matures in the year ended December
31, 2006.
Note 11 Subsequent Event
----------------
By a Term Sheet dated February 15, 2006, the Company has proposed
the following transactions that it intends to undertake and
complete as follows:
The Company will incorporate a wholly-owned subsidiary on or
before May 31, 2006 to merge with Brasada Resources, LLC,
("Brasada") a company engaged in oil and gas exploration and
development. As a result, the Company will acquire all the
issued and outstanding shares of Brasada and Brasada will
become a wholly-owned subsidiary of the Company. The
consideration for the acquisition will be 18,000,000
post-forward split common shares of the Company.
Concurrent with the closing of the merger, the Company will
cancel 34,106,183 commons shares previously issued and forward
split its common shares on a 2.5238066 for one basis.
As a condition of closing of the merger, the Company will
close a private placement ("PP") of up to 8,750,000 units
("Units") at $0.80 per unit. Each Unit will consist of one
post-forward split common share of the Company and one share
purchase warrant. Four warrants will entitle the holder to
purchase one post-forward split common share at $1.25 per
share for a period of five years.
As a further condition of closing, the Company will sell up to
$2,500,000 of convertible debentures. The debentures will be
unsecured, bear interest at 9% per annum (commencing 120 days
from issuance) and will be for a term of three years. The
debentures will convert into units at $0.80 per unit, equal to
the unit price in the PP. The debentures will be payable in
consecutive monthly instalments of principal and interest
commencing 120 days from issuance.
19
Note 11 Subsequent Event - (cont'd)
----------------
The debentures will be converted as to the principal amount
into Units upon closing of the merger and the PP. The Units
will form a portion of the PP. In addition, the debentures
will become convertible, at the option of the holder, 70 days
after the earlier of i) termination of the exclusivity period
provided for in the term sheet, if the merger has not closed
by such date, or ii) the date of termination or abandonment of
the merger prior to the end of the exclusivity period.
Pending closing of the merger, the Company will use the
debenture proceeds to provide bridge financing to Brasada. The
bridge financing will be for a term of 120 days from closing
of the bridge financing and will be secured by a perfected
security interest and first lien on all the assets of Brasada
and the entire equity interest in Brasada's subsidiaries and
51% of the issued shares of Brasada. Closing of the merger
will constitute repayment in full. The loan will bear interest
at 9% per annum with interest only payable monthly. Upon the
occurrence of an event of default under the bridge financing,
or failure to consummate the merger, the interest rate shall
increase to 15%.
The Company agrees to pay a cash fee of up to 5% of the gross
proceeds received from the PP. to persons who make
introductions to offerees to the PP. The Company shall pay a
finder's fee of 500,000 post-forward split common shares. The
Company shall also adopt a 2,000,000 post-forward split common
share employee stock option plan.
This term sheet is subject to the execution of a definitive merger
agreement.
Note 12 Comparative Figures
-------------------
The comparative figures have been reclassified to be consistent
with the current year's presentation.
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 8A: CONTROLS AND PROCEDURES
Evalution of Disclosure Controls
We evaluated the effectiveness of our disclosure controls and procedures as of
the end of the 2005 fiscal year. This evaluation was conducted by our chief
executive officer and our principal accounting officer, Mr. J. Earl Terris.
Disclosure controls are controls and other procedures that are designed to
ensure that information that we are required to disclose in the reports we file
pursuant to the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported.
Limitations on the Effective of Controls
Our management does not expect that our disclosure controls or our internal
controls over financial reporting will prevent all error and fraud. A control
system, no matter how well conceived and operated, can provide only reasonable,
but no absolute, assurance that the objectives of a control system are met.
Further, any control system reflects limitations on resources, and the benefits
of a control system must be considered relative to its costs. These limitations
also include the realities that judgments in decision-making can be faulty and
that breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by
collusion of two or more people or by management override of a control. A design
of a control system is also based upon certain assumptions about potential
future conditions; over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and may not be detected.
Conclusions
Based upon his evaluation of our controls, the chief executive officer and
principal accounting officer has concluded that, subject to the limitations
noted above, the disclosure controls are effective in providing reasonable
assurance that material information relating to us is made known to management
on a timely basis during the period when our reports are being prepared. There
were no changes in our internal controls that occurred during the quarter
covered by this report that have materially affected, or are reasonably likely
to materially affect our internal controls.
20
PART III
ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Name Age Position with Registrant Served as a Director
or Officer since
J. Earl Terris 60 President, Secretary, Treasurer, November 17, 2000
Chief Executive Officer,
and Director (Principal Executive
Officer, Principal Financial Officer,
and Principal Accounting Officer)
The following is a biographical summary of Mr. Earl Terris:
J. Earl Terris is the founder of our company. Mr. Terris has been the President,
Secretary-Treasurer and Director since our company's inception on November 17,
2000. He is currently employed as the president and owner of Sirret Investments,
Ltd., a Canadian private investment company, and as a development manager for
Berkshire Young Enterprises. Between September 1999 and January 2000 he was
employed as the deputy store manager for Thresher Wine Stores. From November
1998 through August 1999 he was employed as a sales advisor and sales
administrator for Comet Stores, Inc. From September 1996 through April 1998 he
was employed as the president of Koda Resources, Ltd., a Canadian public
resources company. From 1994 through 1997 Mr. Terris was a partner in Franchise
Sales Associates and Franchise Conxions.
All directors are elected annually by our shareholders and hold office until the
next annual meeting. Each officer holds office at the pleasure of the board of
directors.
Code of Ethics
The Company has not formally adopted a written code of ethics that applies to
the Company's principal executive officer, principal financial officer or
controller, or persons performing similar functions. Based on our small size,
early development stage and limited financial and human resources, we did not
believe that formally adopting a written code of ethics would
Audit Committee
Since we have only one director, we have neither an audit committee of the Board
of Directors nor an "audit committee financial expert," as such term is defined
under the Securities Exchange Act.
ITEM 10: EXECUTIVE COMPENSATION
The table below summarizes all compensation awarded to, earned by, or paid to
our executive officers by any person for all services rendered in all capacities
to us for the fiscal year ended December 31, 2005.
21
Annual Compensation Long Term Compensation
LTIP
Other Annual Restricted Options/ payouts All Other
Name (1) Title Year Salary Bonus Compensation Stock Awarded SARs (#) ($) Compensation
-------- ----- ---- ------ ----- ------------ ------------- -------- --- ------------
J. Earl President/Secretary/Treasurer 2005 $0 $0 $15,500 $0 $0 $0 0
Terris
J. Earl President/Secretary/Treasurer 2004 $0 0 $ 6,000 0 0 0 0
Terris
J. Earl President/Secretary/Treasurer 2003 $0 0 $ 0 0 0 0 0
Terris
Section 16(A) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our executive officers and directors,
and persons who beneficially own more than 10% of our equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Officers, directors and greater than 10% shareholders are required
by SEC regulation to furnish us with copies of all Section 16(a) forms they
file. Based on our review of the copies of such forms we received, we believe
that during the fiscal year ended December 31, 2005 all such filing requirements
applicable to our officers and directors were complied with exception that
reports were filed late by the following persons: J. Earl Terris filed a late
Form 3 on June 29, 2005.
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of
our shares of common stock at March 15, 2006, by (i) each person known by us to
be the beneficial owner of more than 5% of our outstanding shares of common
stock, (ii) each of our directors, (iii) our executive officers, and (iv) by all
of our directors and executive officers as a group. Each person named in the
table, has sole voting and investment power with respect to all shares shown as
beneficially owned by such person and can be contacted at our executive office
address.
------------------------- -------------------------------- ---------------------------- ---------------------------
TITLE OF CLASS NAME OF BENEFICIAL OWNER SHARES OF COMMON STOCK PERCENT OF CLASS
------------------------- -------------------------------- ---------------------------- ---------------------------
Common J. Earl Terris 34,106,183 86.7%
------------------------- -------------------------------- ---------------------------- ---------------------------
Directors and Officers 86.7%
as a Group consisting
of one person
------------------------- -------------------------------- ---------------------------- ---------------------------
The percent of class is based on 39,356,189 shares of common stock issued and
outstanding as of the date of this annual report.
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended December 31, 2005, we paid $13,000 and accrued
$2,500 as management fees to our president, J. Earl Terris for management
services and $1,500 for office services that he has provided to us.
22
During the fiscal year ended December 31, 2005, we issued 32,930,113 common
shares at $0.0016 per share as consideration for settlement of $13,500 in
accounts payable and $41,118 in amounts due to a company controlled by J. Earl
Terris
Otherwise, neither our sole director or officer, nor any proposed nominee for
election as a director, nor any person who beneficially owns, directly or
indirectly, shares carrying more than 10% of the voting rights attached to all
of our outstanding shares, nor any promoter, nor any relative or spouse of any
of the foregoing persons has any material interest, direct or indirect, in any
transaction since our incorporation or in any presently proposed transaction
which, in either case, has or will materially affect us.
Our management is involved in other business activities and may, in the future
become involved in other business opportunities. If a specific business
opportunity becomes available, such persons may face a conflict in selecting
between our business and their other business interests. In the event that a
conflict of interest arises at a meeting of our directors, a director who has
such a conflict will disclose his interest in a proposed transaction and will
abstain from voting for or against the approval of such transaction.
ITEM 13: EXHIBITS AND REPORTS
3.1 Articles of Incorporation*
3.2 By-Laws*
10.1 Term Sheet, dated as of February 15, 2006, between the Company
and Brasada Resources LLC.
31.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
* previously filed as an exhibit to our registration statement on Form SB-2,
as amended.
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our principal accountants, Amisano Hanson, Chartered Accountants, billed the
following fees for the services indicated:
Fiscal year-ended
December 31, 2005 December 31, 2004
Audit fees $ 6,715 $ 1,607
Audit-related fees - -
Tax fees 562 -
All other fees $ 7,448 $ 3,658
23
Audit fees consist of fees related to professional services rendered in
connection with the audit of our annual financial statements. All other fees
relate to professional services rendered in connection with the review of the
quarterly financial statements.
Our Board's policy is to pre-approve all audit and permissible non-audit
services performed by the independent accountants. These services may include
audit services, audit-related services, tax services and other services. Under
our Board's policy, pre-approval is generally provided for particular services
or categories of services, including planned services, project based services
and routine consultations. In addition, the Board may also pre-approve
particular services on a case-by-case basis. Our Board approved all services
that our independent accountants provided to us in the past two fiscal years.
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Foothills Resources, Inc.
/s/ J. Earl Terris
---------------------------
J. Earl Terris
President, Secretary, Treasurer
Chief Executive Officer and Director
(Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer)
Dated: March 15, 2006
24