[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from
__________________________to __________________________
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [
] No [X]
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [
] No [X]
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No
[ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of
the Exchange Act. [ ]
The aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such common
equity, as of the last business day of the registrants most recently completed
second fiscal quarter was $852,275.
The number of shares outstanding of each of the registrants
classes of common stock, as of the latest practicable date was 3,585,818,688
shares of common stock as of September 28, 2017.
PART I
ITEM 1. BUSINESS
Forward-Looking Statements
This Annual Report on Form 10-K
includes a number of forward-looking statements that reflect management's
current views with respect to future events and financial performance.
Forward-looking statements are projections in respect of future events or our
future financial performance. In some cases, you can identify forward-looking
statements by terminology such as may, should, expects, plans,
anticipates, believes, estimates. predicts, potential or continue or
the negative of these terms or other comparable terminology. Those statements
include statements regarding the intent, belief or current expectations of us
and members of our management team, as well as the assumptions on which such
statements are based. Prospective investors are cautioned that any such
forward-looking statements are not guarantees of future sperformance and involve
risk and uncertainties, and that actual results may differ materially from those
contemplated by such forward-looking statements. These statements are only
predictions and involve known and unknown risks, uncertainties and other
factors, including the risks in the section entitled Risk Factors set forth in
this Annual Report on Form 10-K for the year ended June 30, 2017, any of which
may cause our companys or our industrys actual results, levels of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by these
forward-looking statements. These risks include, by way of example and without
limitation:
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our ability to successfully commercialize our SonCav
technology to produce a market-ready product in a timely manner and in
enough quantity;
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our ability to successfully commercialize our oil and gas
assets, namely our assets located in the White Top Field in Southwest
Louisiana;
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the absence of contracts with customers or suppliers;
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our ability to maintain and develop relationships with
customers and suppliers;
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our ability to successfully integrate our technology into
the competitive oil and gas industry and at a cost that is profitable to
the Company;
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the retention and availability of key personnel;
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general economic and business conditions;
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substantial doubt about our ability to continue as a
going concern;
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our need to raise additional funds in the future;
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our ability to successfully recruit and retain qualified
personnel in order to continue our operations;
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our ability to successfully implement our business plan;
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our ability to successfully acquire, develop or
commercialize new products and equipment and acquire additional oil and
gas assets;
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intellectual property claims brought by third parties;
and
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the impact of any industry regulation.
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Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, or performance. Except as
required by applicable law, including the securities laws of the United States,
we do not intend to update any of the forward-looking statements to conform
these statements to actual results.
Readers are urged to carefully
review and consider the various disclosures made by us in this report and in our
other reports filed with the Securities and Exchange Commission (the SEC). We
undertake no obligation to update or revise forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated events or changes
in the future operating results over time except as required by law. We believe
that our assumptions are based upon reasonable data derived from and known about
our business and operations. No assurances are made that actual results of
operations or the results of our future activities will not differ materially
from our assumptions.
As used in this Annual Report on
Form 10-K and unless otherwise indicated, the terms we, us, our or the
Company refer to Lithium Exploration Group, Inc. a Nevada corporation,
including our wholly-owned subsidiaries, Alta Disposal Ltd., an Alberta, Canada
corporation (Alta Disposal), Black Box Energy, Inc., a Nevada corporation
(Black Box Energy), and our 51% owned subsidiary, Alta Disposal Morinville
Ltd., an Alberta, Canada corporation (ADM), unless otherwise indicated.
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Unless otherwise specified, all
dollar amounts are expressed in United States dollars. Our common stock is
currently listed on the OTC Market, OTC Pink tier, under the symbol LEXG.
Corporate History and Overview
We are a U.S.-based exploration
and development company that had been focused on the acquisition and development
potential of lithium brines and other precious metals that demonstrate high
probability for near-term production. Currently the company is focused testing
its SonCav Technology for use in the oil and gas industry and the acquisition of
oil and gas related assets in Western Canada and Southwest Louisiana. We were
incorporated on May 31, 2006 in the State of Nevada under the name Mariposa
Resources, Ltd. Effective November 30, 2010, we changed our name to Lithium
Exploration Group, Inc., by way of a merger with our wholly-owned subsidiary
Lithium Exploration Group, Inc., which was formed solely for the change of name.
Our executive offices are located
at 4635 South Lakeshore Drive, Suite 200, Tempe, AZ 85282-7127. The telephone
number for our Tempe office is (480) 641-4790.
On October 18, 2013, we
completed, through our then wholly owned subsidiary, Alta Disposal Ltd.
(formerly 1617437 Alberta Ltd.), an Alberta, Canada corporation, the acquisition
of 51% of the shares of Blue Tap Resources Inc. for total payment of
CAD$466,547. As of September 30, 2013, CAD$300,000 (US$294,908) was paid
regarding the acquisition. As a result of the acquisition, Blue Tap Resources
Inc. became a partially-owned subsidiary of our company through our wholly owned
subsidiary, Alta Disposal Ltd. On January 22, 2014, Blue Tap Resources Inc.
changed its name to Alta Disposal Morinville Ltd. Effective September 4, 2015,
we entered into an asset purchase agreement with Cancen Oil Canada whereby we
sold all right, title and interest of Alta Disposal Morinville Ltd. assets for
total purchase price of CAD$10,000 (approximately USD$7,531).
On August 20, 2013, we entered
into a letter of intent with Tero Oilfield Services Ltd. (Tero), a private
company, pursuant to which Tero agreed to sell up to 75% of the issued and
outstanding common shares of Tero to our company in exchange for payment in the
amount of $1,500,000.
On March 1, 2014, Alta Disposal,
our wholly-owned subsidiary, entered into a share purchase agreement with Tero
and Garry Hofmann, the sole shareholder of Tero. Pursuant to the agreement, Mr.
Hofmann agreed to sell and we agreed to purchase 50% of the issued and
outstanding common shares of Tero in exchange for an aggregate of CAD$1,000,000.
As part of the share purchase by Alta Disposal, on February 22, 2014, Tero
declared a dividend in the amount of $307,104, payable to Mr. Hofmann by way of
a promissory note. As a result of the share purchase agreement, Tero is now a
partially owned (50%) subsidiary of our company. Additionally, Alta Disposal,
Tero and Mr. Hofmann entered into an option agreement entitling Alta Disposal to
purchase up to an additional 25% of the issued and outstanding common shares of
Tero from Mr. Hofmann, exercisable at a price of $500,000 for a period of one
year. On May 1, 2015, our company entered into a share purchase agreement with
an individual and disposed of our 50% interest in Tero in consideration for
$300,000.
On October 17, 2014, we amended
our Articles of Incorporation, which amendment was filed with the Nevada
Secretary of State on October 17, 2014, to increase the authorized capital of
our common shares from 500,000,000 common shares, par value $0.001, to
2,000,000,000 common shares, par value $0.001. Our authorized capital consists
of 2,000,000,000 common shares and 100,000,000 preferred shares, all with a par
value of $0.001.
On January 19, 2015, we received
written consent from our Board of Directors to implement a reverse stock split
of our issued and outstanding shares of common stock on a basis of 20 old shares
of common stock for 1 new share of common stock. Stockholders of our company
originally approved the reverse stock split on October 14, 2014 at a special
meeting. The reverse stock split was reviewed and approved for filing by FINRA,
effective February 25, 2015, and we were assigned CUSIP number 53680P209,
effective that same date. Our authorized capital was not affected by the reverse
stock split.
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On June 22, 2015, in accordance
with our Articles of Incorporation, our Board of Directors designated 250,000 of
our 100,000,000 authorized shares of Preferred Stock as Series A Preferred
Stock, par value $0.001, (the Series A Preferred). The Series A Preferred
ranks senior to our common stock, carrying general voting rights with the common
stock at the rate of 62 votes per Series A Preferred share. The Series A
Preferred will be deemed cancelled within one year of issuance and are not
entitled to share in dividends or other distributions. So long as any shares of
Series A Preferred are outstanding, the affirmative vote of not less than 75% of
those outstanding shares of Series A Preferred will be required for any change
to our Articles of Incorporation. As of June 30, 2017, there are zero shares of
Series A Preferred outstanding.
On July 9, 2015, our Board of
Directors approved a settlement agreement dated June 25, 2015 among our company,
JDF Capital Inc., and our wholly-owned subsidiary, Alta Disposal Ltd.
Previously, pursuant to a general security agreement dated July 22, 2014, JDF
Capital Inc. was granted a first-ranking security interest over all current and
future assets of Alta Disposal Ltd., in full guarantee of a $708,000 loan to our
Company. Pursuant to the settlement agreement, JDF Capital Inc. and its assign,
Blue Citi LLC, agreed to release and discharge their general security interest
in consideration of the issuance of 130,000 shares of Series A Preferred. These
shares were subsequently cancelled on December 5, 2015.
On July 13, 2015, our Board of
Directors approved an increase in our authorized capital from 2,000,000,000
shares of common stock, par value $0.001, to 10,000,000,000 shares of common
stock, par value of $0.001 per share, and a reverse stock split on a basis of up
to 200 old shares of common stock for 1 share of common stock. The increase of
authorized capital and stock split was approved by shareholders on July 13,
2015. A Definitive Schedule 14C was filed with the Securities and Exchange
Commission (the SEC) on August 6, 2015. On September 9, 2015, we filed with
the Nevada Secretary of State a Certificate of Amendment to our Articles of
Incorporation increasing our authorized capital from 2,000,000,000 shares of
common stock, par value $0.001, to 10,000,000,000 shares of common stock, par
value of $0.001 per share. The reverse stock split was reviewed and approved for
filing by FINRA, effective September 30, 2015, and we were assigned CUSIP number
53680P308, effective that same date.
Other than as set out herein, we
have not been involved in any bankruptcy, receivership or similar proceedings,
nor have we been a party to any material reclassification, merger, consolidation
or purchase or sale of a significant amount of assets not in the ordinary course
of our business.
Disclosure Adjustments for Reverse Stock Split
On January 19, 2015, our board of
directors consented to effect a reverse stock split of our issued and
outstanding shares of common stock on a basis of 20 old shares of common stock
for one 1 new share of common stock. The reverse stock split was reviewed and
approved for filing by the Financial Industry Regulatory Authority (FINRA)
effective February 25, 2015. Our authorized capital was not affected by the
reverse stock split.
On July 13, 2015, our board of
directors consented to implement a reverse stock split of our issued and
outstanding shares of common stock on a basis of 200 old shares of common stock
for 1 new share of common stock. The reverse stock split was reviewed and
approved for filing by FINRA effective September 30, 2015. Our authorized
capital was not affected by the reverse stock split.
In this Annual Report on Form
10-K and in the accompanying audited financial statements and notes, the above
described reverse splits are reflected retroactively in the descriptions of
shares and warrants and their corresponding issuance and exercise prices, except
where otherwise indicated.
Our Business
We are a U.S.-based exploration
and development company that had been focused on the acquisition and development
potential of lithium brines and other precious metals that demonstrate high
probability for near-term production. Currently, the company is focused on
testing the SonCav Technology for potential use in mining, oil and gas and other
industrial applications in the future. In addition, the Company is focused on
the acquisition of oil and gas related assets in North America.
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SonCav Technology
The SonCav technology uses a
patented process to mechanically induce an ultrasonic cavitation to superheat
fluid. Our testing and development has historically been focused solely on water
and crude oil, but technology is expected to have many other commercial uses
including mining, LNG, Ethanol, industrial and other chemical uses in the
pharmaceutical industry. A cavitation is the implosion of a microbubble in fluid
which causes an ultrasonic reaction capable of generating intense heat in a
millisecond and releasing ultrasonic soundwaves that have the ability to
actually break molecules down in the process. In a water application, the SonCav
technology can eliminate toxic organic compounds in brackish water or be used to
superheat fluid inducing a flash evaporation, separating suspended solids from
the fluid stock. In an oil application, the induced cavitation can be used to
heat an oil emulsion, separating trapped gas and water in the oil so that it can
be sold. Through harnessing the ultrasound released by the cavitation reaction,
the technology can also break the hydrocarbon chain assisting in forming new
lighter hydrocarbon compounds in the same body of fluid.
SonCavs features and benefits include:
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No combustion of natural gas, thereby limiting
on-site emissions and EPA regulatory hurdles;
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Lower operating cost due to more efficient heat
transfer and circulation;
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Ability to retrofit to any tank configuration
for addition of heat to separating operation;
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Lower maintenance costs and extended life due
to reduction of corrosive compounds and waste build-up inside walls of
tank; and
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Increased volume of salable oil due to
effective incorporation of carbon constituents.
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There are three primary applications for the SonCav technology
in mining, oil and gas and other industrial applications.
Mining Exploration and Development
The first is simply assisting in
cleaning up water-based waste streams that are costly to transport to a place
where they can be appropriately handled or disposed. The technology can assist
by treating the waste on site by lowering the volume of fluid to be disposed and
reducing the environmental liability of transporting fluid waste as opposed to
dry waste.
We are presently focused on the
testing of the SonCav technology, but as we develop commercial units, we expect
to explore opportunities in Canada that can see the greatest benefit from the
use of SonCav. Using the technology for the extraction of lithium and other
minerals from existing underground brine is a focus of our mineral extraction
and mining goals. There are many known areas of Alberta that have mineral rich
brine that is being brought to the surface in the production of oil and that is
a waste by-product to the oil and gas producers. We believe we can find
opportunities to use the SonCav technology to treat economically viable waste
streams and to generate revenue from the sale of the extracted minerals.
We believe that solution mining
for potash and other valuable chlorides is also a target market. Solution mining
is the use of fresh water injection to underground salt beds to dissolve the
salts then bring the brine solution to the surface to extract the valuable
minerals. In many cases, the use of solution mining is significantly cheaper and
less risky than creating an underground mine using elevators and laborers. The
SonCav technology can significantly reduce the pipeline expense for solution
mining efforts because it enables the operator to recycle the water that is used
in the process in lieu of disposing it and having to bring in fresh water from
regional lakes and rivers.
The final target for our mining
efforts is to identify mining operations across Canada that have environmental
issues, either in the clean-up of fluid waste streams or in areas where they
cannot access enough fresh water to manage their mining and processing
activities. These operations generally are at significant risk of being shut
down and represent good market opportunities for SonCav to potentially solve
their operating problems.
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Oil and Gas
A central application of SonCav
is the heating of produced crude oil before it reaches a refinery for further
processing and storage and transportation. Produced oil comes out of the ground
as an emulsion, which is comprised of a fluid that has oil, gas, and water all
mixed together. Producers use a combination of gravity separation, chemical
separation, and heat separation to capture the three streams, with the oil and
gas being sold and the water being disposed of generally in underground disposal
wells. All three of the separation techniques result in water falling to the
bottom, oil separating in the center, and the lighter natural gas settling on
top. The most efficient technique historically has been to speed up the natural
separation by inducing heat which forces the three streams to separate out more
quickly than just letting the gravity of the fluids break them apart over time.
This process speeds up production rates, thus allowing for quicker sales.
Chemically induced separation has come a long way over the past 20 years and,
while historically it has been very expensive, it is becoming a part of most oil
and gas production to assist in the separation process.
Traditionally the use of heat for
treating oil emulsion has been induced by the combustion of natural gas through
a metal tube that runs inside of the fluid body, then transferring that heat to
the fluid thereby heating it and speeding up the separation. The heating
application has been under a lot of scrutiny in recent years due to more
stringent environmental and safety regulations. Heating oil as part of
production has historically been overlooked as a cost of doing business but now,
due to regulation and technological advancements, producers are being forced to
look to other techniques in their day to day operations. Some of the new
environmental laws calculate emissions created from the combustion as part of a
producers carbon footprint. The SonCav technology uses grid electricity to
affect heat being created by the cavitation reaction inside of the body of fluid
and is considered to be zero emissions in all jurisdictions. It can also be
retrofitted to existing separation infrastructure, reducing the up-front expense
incurred by the operator.
The storage and transportation
companies, also known as midstreamers, that are responsible for collecting the
oil from producers and transporting it to the refineries have a very acute need
for a technology like SonCav. In many regions, they are forced to circulate,
heat, and add chemicals to crude oil to limit the paraffin waxes and heavier
parts of the hydrocarbon chain that will drop out of the oil. These paraffin
waxes and heavy oil particles are expensive to remove and can cause serious
issues with their tank and pipeline infrastructure. Most pipeline operators will
bring the oil out of the ground every 30 to 40 miles to heat the oil again
before sending it on to the next terminal. This constant heating of oil can
become very expensive and can cause them problems with emissions laws in certain
jurisdictions where their only other option is to add very cost prohibitive
chemicals. The SonCav technology can be used at tank farms and terminals to
reduce the need for combustion of natural gas and costly chemicals.
At the drill site, the SonCav
unit can be installed to intake the oil and frac-water mixture as it comes out
of the ground and separate it using a flash evaporation process. The goal is to
separate the sand, chemical and oil mixture from the flowback water that is a
waste byproduct in the fracturing process. By doing this, the fresh water can be
recycled and reused in future well-drilling efforts and take the dewatered
solids away to be disposed of. By dewatering solid waste, the trucking companies
are hauling significantly less solid waste that is a significantly less risky
product to move over the road. In some geographic locations, these waste sands
from oil and gas production contain valuable minerals like lithium, magnesium,
and potassium which can be further processed and sold.
Other Industrial Markets
In Canada, there are many regions
that have drought issues and struggle to provide enough fresh water to
accommodate residential, agricultural, industrial, and oil and gas industry
needs. These areas could use the technology simply to provide fresh water to
support all of these needs by treating brackish water that cannot otherwise be
used. The issues around drought conditions are the water levels of local rivers,
lakes, and underground fresh water aquifers. Nearly all of the regions affected
by these drought conditions have shallow aquifers of water but it has too much
salinity to be used in many necessary applications. Regional facilities could be
put in place to treat brackish water to eliminate some of the toxic organic
compounds and reduce the overall salinity to levels where it could be used to
water crops and potentially provide potable water for residential needs.
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There are also significant needs
in an industrial setting to clean up waste that for years has been placed back
into local rivers or into underground disposal wells. The options for expanding
businesses that are not grandfathered into some of these older disposal
techniques are limited. We believe that the SonCav unit can solve acute waste
issues for these industrial settings. Even the companies that have licenses to
dump waste streams into fresh water river systems are constantly considering
eliminating this practice by looking at technologies like the one that SonCav
provides.
Acquisition of Oil and Gas Assets
Our current oil and gas activities are limited to the
following:
McKean County, Pennsylvania
On September 9, 2016, we
incorporated a wholly-owned subsidiary, Black Box Energy, Inc., in the State of
Nevada (BBE). On September 9, 2016, through BBE, we entered into a letter
agreement with PetroChase, Inc. pursuant to which we agreed to purchase 50% of a
70% net revenue interest held by PetroChase in a certain oil and gas lease known
as the McKean County Project, located in McKean County, Pennsylvania. In
consideration for the working interest, we paid $250,000 to PetroChase in equal
installments on September 9, 2016 and September 16, 2016. We were required, but
did not pay, an additional $30,000 to PetroChase for management fees by December
16, 2016.
Pursuant to the letter agreement,
we will be entitled to recoup 100% of net revenue derived from the lease until
we have recouped 100% of the $280,000 paid in consideration of the working
interest. The agreement provides that PetroChase will serve as the operator and
drill contractor for the project. The drilling of an initial well on the
property was scheduled for fall of 2016. As at the date of this report, we are
in dispute with PetroChase regarding its failure to drill a well in accordance
with the agreement, and have given PetroChase notice of breach of contract. We
have therefore indefinitely postponed delivery of the $30,000 management fee
until this issue has been resolved.
Sulphur, Louisiana
On April 13, 2017, BBE entered
into a Joint Development and Option Agreement with White Top Oil & Gas, LLC
(White Top), a Louisiana limited liability company (the White Top
Agreement), under which White Top is the designee to a funding agreement to
finance and participate in the completion of certain oil and gas development,
exploration and operating activities on certain lands located in Sulphur,
Louisiana (the White Top Field). Under the terms of the White Top Agreement,
BBE has advanced approximately $819,000 to White Top as consideration to White
Top for the option to convert those funds into a 3% gross royalty from the
future revenue at the Sulphur, Louisiana oil and gas property. BBE also has the
right to repayment of the advanced funds if it does not believe the revenue from
the royalty will be substantial enough. White Tops rights to repayment of the
monies received from BBE expired on August 1, 2017.
White Top has until May 15, 2018
to acquire the field in Sulphur, LA. In the interim they have the option to
drill development wells on the property to prove up additional reserves in the
field before completing the acquisition. BBE has hired an independent seismic
analyst as well as a geophysical team to review the work by the White Top team
and is comfortable with how they are progressing. Ultimately the goal is to
bring a SonCav technology unit to the field in Sulphur for onsite testing of the
technology and to be used as a showroom for potential Canadian customers to see
the unit in operation.
Research and Development
We currently have no research and
development activities.
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Competition
Production Technology/Liquid Heating Technology
There are many competitors in the
water treatment and production technology industry. It is a very fragmented and
competitive market where we compete with many small regional service providers
and a handful of multinational companies like General Electric, Schlumberger and
Baker Hughes. Every application of the technology noted above has an acute
regional need. Some of these needs are because of operational logistics and some
are created by regulatory mandates.
Because of this regional dynamic,
smaller companies are often able to provide a more specialized need for their
customers, although these needs generally do not involve high levels of
technological breakthroughs. Regional service providers generally can take other
off the shelf technologies and assemble them for a specific clients needs. By
tailoring a solution for a client, smaller service providers can often provide
better overall service for a customer and still be price competitive with the
multinationals. Another reason for the fragmented regional market is because
many applications for which we are providing solutions have very high
transportation costs that make it cost prohibitive or logistically difficult to
build something and ship it more than a couple hundred miles.
Larger conglomerates have
substantial sales and marketing infrastructure with substantial R&D budgets
which allow them to be the leaders of innovation in the space. This can be seen
in the areas of water treatment as well as oil and gas production technology
development. When it comes to innovation, these larger companies dominate the
market but are limited by scale issues. For a new technology to make a
meaningful financial impact it has to sell these new advanced technologies to
large regional and multinational clients.
Our competitive advantage in both
of these markets is that we are innovating a technology that can be implemented
anywhere. Most of the applications for the technology simply utilize a generator
that can be shipped anywhere in Canada then inserted into existing
infrastructure. As a smaller company, we have limited R&D funds but also
have designed the technology so that we can sell it to smaller operators with
acute needs and still have good financial results.
Below is a list of existing
technology that is currently used to heat fluids and treat industrial waste
streams. These technological pieces can be used on their own or together
depending on the need of the end customer.
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Natural Gas Combustion This is where the combustion of
natural gas is used to transfer heat through a fire tube that runs
through a body of fluid which transfers heat to the fluid. This is not a
highly scientific process and is used by smaller and larger competitors.
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Chemical Additives Chemicals are used to induce
separation of compounds, neutralize organic impurities, and generally as a
catalyst for other types of separation or treatment applications.
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Centrifuges Centrifuges are used to spin fluid and use
the gravity of certain compounds to dewater or separate heavier compounds
from lighter ones.
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Filtration Systems Filters and reverse osmosis is also
generally used in conjunction with other applications and while it is
extremely expensive to replace and clean filters on a large scale they can
be built to target specific size impurities as part of a broader treatment
set up.
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Steam Circulation Steam has been used as a recycle heat
exchange tool to make other forms of heating water to make the overall
treatment more effective. This is generally used in conjunction with
natural gas combustion where the steam generated from the water heating is
recirculated back into the system to add heat and assist in separation or
concentration of the fluid stock.
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Gravity Separation Gravity separation is a simple form
of separation of oil or water where the heaviest compounds are dropped to
the bottom and the lighter ends are siphoned off over time and is
generally used in conjunction with smaller amounts of heat input or
chemical additives.
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Evaporation Evaporation is used in many rural areas or
arid climates where the waste stream can sit for a long period of time
allowing the waste stream to simply condense into a dewatered solid that
can be further treated or disposed.
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Oil and Gas Industry
The oil and natural gas industry
is intensely competitive, and we compete with numerous other oil and natural gas
exploration and production companies. Some of these companies have substantially
greater resources than we have. Not only do they explore for and produce oil and
natural gas, but also many carry on midstream and refining operations and market petroleum and other products on
a regional, national or worldwide basis. The operations of other companies may
be able to pay more for exploratory prospects and productive oil and natural gas
properties. They may also have more resources to define, evaluate, bid for and
purchase a greater number of properties and prospects than our financial or
human resources permit.
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Our larger or integrated
competitors may be better able to absorb the burden of existing, and any changes
to federal, state, and local laws and regulations than we can, which would
adversely affect our competitive position. Our ability to discover reserves and
acquire additional properties in the future will be dependent upon our ability
and resources to evaluate and select suitable properties and to consummate
transactions in this highly competitive environment. In addition, we may be at a
disadvantage in producing oil and natural gas properties and bidding for
exploratory prospects, because we have fewer and limited financial and human
resources than other companies in our industry. Should a larger and better
financed company decide to directly compete with us, and be successful in its
efforts, our business could be adversely affected.
The market for oil and natural
gas that will be produced from our properties depends on factors beyond our
control, including the extent of domestic production and imports of oil and
natural gas, the proximity and capacity of pipelines and other transportation
facilities, demand for oil and natural gas, the marketing of competitive fuels
and the effects of state and federal regulation. The oil and natural gas
industry also competes with other industries in supplying the energy and fuel
requirements of industrial, commercial and individual consumers.
Our oil production is expected to
be sold at prices tied to the spot oil markets. Our natural gas production is
expected to be sold under short-term contracts and priced based on first of the
month index prices or on daily spot market prices. We rely on our operating
partners to market and sell our production. Our operating partners include a
variety of exploration and production companies, from large publicly-traded
companies to small, privately-owned companies. We do not believe the loss of any
single operator would have a material adverse effect on our company as a whole.
Intellectual Property
We own the trademark Lithium
Exploration Group for the use of mining exploration, namely, lithium
exploration services, in class 42 (U.S. CLS. 100 and 101). The registration
number is 4,075,565 and was registered on December 20, 2011. We do not have any
other intellectual property.
Government Approvals and Regulations
Regulations Pertaining to Our Mining Operations
Any operations at our lithium
properties will be subject to various federal and state laws and regulations in
Canada which govern prospecting, development, mining, production, exports,
taxes, labor standards, occupational health, waste disposal, protection of the
environment, mine safety, hazardous substances and other matters. We will be
required to obtain those licenses, permits or other authorizations currently
required to conduct exploration and other programs. There are no current orders
or directions relating to us or to our lithium properties with respect to the
foregoing laws and regulations. Such compliance may include feasibility studies
on the surface impact of our proposed operations, costs associated with
minimizing surface impact, water treatment and protection, reclamation
activities, including rehabilitation of various sites, on-going efforts at
alleviating the mining impact on wildlife and permits or bonds as may be
required to ensure our compliance with applicable regulations. It is possible
that the costs and delays associated with such compliance could become so
prohibitive that we may decide to not proceed with exploration, development, or
mining operations on any of our mineral properties. We are not presently aware
of any specific material environmental constraints affecting our properties that
would preclude the economic development or operation of property in Canada.
Regulations Pertaining to Our Oil and Gas Operations
Our operations are subject to
various rules, regulations and limitations impacting the oil and natural gas
exploration and production industry as whole.
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Regulation of Oil and Natural Gas Production
Our oil and natural gas
exploration, production and related operations are subject to extensive rules
and regulations promulgated by federal, state, tribal and local authorities and
agencies. For example, certain states such as North Dakota and Montana require
permits for drilling operations, drilling bonds and reports concerning
operations and impose other requirements relating to the exploration and
production of oil and natural gas. Such states may also have statutes or
regulations addressing conservation matters, including provisions for the
unitization or pooling of oil and natural gas properties, the location of wells,
the method of drilling and casing wells, the surface use and restoration of
properties upon which wells are drilled, the sourcing and disposal of water used
in the process of drilling, completion and abandonment, the establishment of
maximum rates of production from wells, and the regulation of spacing, plugging
and abandonment of such wells. The effect of these regulations is to limit the
amount of oil and natural gas that producers can produce from their wells and to
limit the number of wells or the locations at which they can drill. Moreover,
both states impose a production or severance tax with respect to the production
and sale of oil, natural gas and natural gas liquids within their jurisdictions.
Failure to comply with any such rules and regulations can result in substantial
penalties. The regulatory burden on the oil and natural gas industry will most
likely increase our cost of doing business and may affect our profitability.
Because such rules and regulations are frequently amended or reinterpreted, we
are unable to predict the future cost or impact of complying with such laws in
the areas in which we operate. Significant expenditures may be required to
comply with governmental laws and regulations and may have a material adverse
effect on our financial condition and results of operations. Additionally,
currently unforeseen environmental incidents may occur or past non-compliance
with environmental laws or regulations may be discovered. Therefore, we are
unable to predict the future costs or impact of compliance. Additional proposals
and proceedings that affect the oil and natural gas industry are regularly
considered by Congress, the states, the Federal Energy Regulatory Commission
(FERC) and the courts. We cannot predict when or whether any such proposals
may become effective.
Regulation of Transportation of Oil
Sales of crude oil, condensate
and natural gas liquids are not currently regulated and are made at negotiated
prices. Nevertheless, Congress could reenact price controls in the future.
Future sales of crude oil will be affected by the availability, terms and cost
of transportation. The transportation of oil by common carrier pipelines is also
subject to rate and access regulation. The FERC regulates interstate oil
pipeline transportation rates under the Interstate Commerce Act. In general,
interstate oil pipeline rates must be cost-based, although settlement rates
agreed to by all shippers are permitted and market-based rates may be permitted
in certain circumstances. Effective January 1, 1995, the FERC implemented
regulations establishing an indexing system (based on inflation) for
transportation rates for oil pipelines that allows a pipeline to increase its
rates annually up to a prescribed ceiling, without making a cost of service
filing. Every five years, the FERC reviews the appropriateness of the index
level in relation to changes in industry costs. On December 17, 2015, the FERC
established a new price index for the five-year period which commenced on July
1, 2016.
Intrastate oil pipeline
transportation rates are subject to regulation by state regulatory commissions.
The basis for intrastate oil pipeline regulation, and the degree of regulatory
oversight and scrutiny given to intrastate oil pipeline rates varies from state
to state. Insofar as effective interstate and intrastate rates are equally
applicable to all comparable shippers, we believe that the regulation of oil
transportation rates will not affect our operations in any way that is of
material difference from those of our competitors who are similarly situated.
Further, interstate and
intrastate common carrier oil pipelines must provide service on a
non-discriminatory basis. Under this open access standard, common carriers must
offer service to all similarly situated shippers requesting service on the same
terms and under the same rates. When oil pipelines operate at full capacity,
access is generally governed by pro-rationing provisions set forth in the
pipelines published tariffs. Accordingly, we believe that access to oil
pipeline transportation services generally will be available to us once we
commence revenues to the same extent as to our similarly situated competitors.
Regulation of Transportation and Sales of Natural Gas
Historically, the transportation
and sale for resale of natural gas in interstate commerce has been regulated by
the FERC under the Natural Gas Act of 1938 (NGA), the Natural Gas Policy Act
of 1978 (NGPA) and regulations issued under those statutes. In the past, the
federal government has regulated the prices at which natural gas could be sold.
While sales by producers of natural gas can currently be made at market prices,
Congress could reenact price controls in the future.
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Onshore gathering services, which
occur upstream of FERC jurisdictional transmission services, are regulated by
the states. Although the FERC has set forth a general test for determining
whether facilities perform a non-jurisdictional gathering function or a
jurisdictional transmission function, the FERCs determinations as to the
classification of facilities is done on a case-by-case basis. State regulation
of natural gas gathering facilities generally includes various safety,
environmental and, in some circumstances, nondiscriminatory take requirements.
Although such regulation has not generally been affirmatively applied by state
agencies, natural gas gathering may receive greater regulatory scrutiny in the
future.
Intrastate natural gas
transportation and facilities are also subject to regulation by state regulatory
agencies, and certain transportation services provided by intrastate pipelines
are also regulated by FERC. The basis for intrastate regulation of natural gas
transportation and the degree of regulatory oversight and scrutiny given to
intrastate natural gas pipeline rates and services varies from state to state.
Insofar as such regulation within a particular state will generally affect all
intrastate natural gas shippers within the state on a comparable basis, we
believe that the regulation of similarly situated intrastate natural gas
transportation in any states in which we operate and ship natural gas on an
intrastate basis will not affect our operations in any way that is of material
difference from those of our competitors. Like the regulation of interstate
transportation rates, the regulation of intrastate transportation rates affects
the marketing of natural gas that we produce, as well as the revenues we receive
for sales of our natural gas.
Environmental Matters
Our operations and properties are
subject to extensive and changing federal, state and local laws and regulations
relating to environmental protection, including the generation, storage,
handling, emission, transportation and discharge of materials into the
environment, and relating to safety and health. The recent trend in
environmental legislation and regulation generally is toward stricter standards,
and this trend will likely continue. These laws and regulations may:
require the acquisition of a permit
or other authorization before construction or drilling commences and for certain
other activities;
limit or prohibit construction,
drilling and other activities on certain lands lying within wilderness and other
protected areas; and
impose substantial liabilities for
pollution resulting from its operations.
The permits required for our
operations may be subject to revocation, modification and renewal by issuing
authorities. Governmental authorities have the power to enforce their
regulations, and violations are subject to fines or injunctions, or both. Given
our limited operations to date, management believes that we are in compliance
with current applicable environmental laws and regulations, and have no material
commitments for capital expenditures to comply with existing environmental
requirements. Nevertheless, changes in existing environmental laws and
regulations or in interpretations thereof could have a significant impact on our
company, as well as the oil and natural gas industry in general.
The Comprehensive Environmental,
Response, Compensation, and Liability Act (CERCLA) and comparable state
statutes impose strict, joint and several liability on owners and operators of
sites and on persons who disposed of or arranged for the disposal of hazardous
substances found at such sites. It is not uncommon for the neighboring
landowners and other third parties to file claims for personal injury and
property damage allegedly caused by the hazardous substances released into the
environment. The Federal Resource Conservation and Recovery Act (RCRA) and
comparable state statutes govern the disposal of solid waste and hazardous
waste and authorize the imposition of substantial fines and penalties for
noncompliance. Although CERCLA currently excludes petroleum from its definition
of hazardous substance, state laws affecting our operations may impose
clean-up liability relating to petroleum and petroleum related products. In
addition, although RCRA classifies certain oil field wastes as non-hazardous,
such exploration and production wastes could be reclassified as hazardous wastes
thereby making such wastes subject to more stringent handling and disposal
requirements. Recent regulation and litigation that has been brought against others
in the industry under RCRA concern liability for earthquakes that were allegedly
caused by injection of oil field wastes.
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The Endangered Species Act
(ESA) seeks to ensure that activities do not jeopardize endangered or
threatened animal, fish and plant species, nor destroy or modify the critical
habitat of such species. Under ESA, exploration and production operations, as
well as actions by federal agencies, may not significantly impair or jeopardize
the species or its habitat. ESA provides for criminal penalties for willful
violations of ESA. Other statutes that provide protection to animal and plant
species and that may apply to our operations include, but are not necessarily
limited to, the Fish and Wildlife Coordination Act, the Fishery Conservation and
Management Act, the Migratory Bird Treaty Act and the National Historic
Preservation Act. Given our limited operations to date, management believes that
we are in compliance with current applicable environmental laws and regulations,
although any change in these statutes or any reclassification of a species as
endangered could subject our company (directly or indirectly through our
operating partners) to significant expenses to modify our operations or could
force discontinuation of certain operations altogether.
On April 17, 2012, the U.S.
Environmental Protection Agency (the EPA) finalized rules proposed on July 28,
2011 that establish new air emission controls under the Clean Air Act (CCA)
for oil and natural gas production and natural gas processing operations.
Specifically, the EPAs rule package includes New Source Performance Standards
(NSPS) for the oil and natural gas source category to address emissions of
sulfur dioxide and volatile organic compounds (VOCs) and a separate set of
emission standards to address hazardous air pollutants frequently associated
with oil and natural gas production and processing activities. On August 5,
2013, the EPA issued final updates to its 2012 VOC performance standards for
storage tanks. The rules establish specific new requirements regarding emissions
from compressors, dehydrators, storage tanks and other production equipment. In
addition, the rules revise leak detection requirements for natural gas
processing plants. These rules may require a number of modifications to the
operations of our third-party operating partners, including the installation of
new equipment to control emissions from compressors.
On September 18, 2015, the EPA
proposed to further amend the NSPS for the oil and natural gas source category
to set standards for methane and VOC emissions from new and modified oil and gas
production sources and natural gas-processing and transmission sources. These
regulations were finalized and published in the Federal Register on June 3,
2016. Although we cannot predict the cost to comply with these new requirements
at this point, compliance with these new rules could result in significant
costs, including increased capital expenditures and operating costs, and could
adversely impact our business.
These new regulations and
proposals and any other new regulations requiring the installation of more
sophisticated pollution control equipment could have a material adverse impact
on our business, results of operations and financial condition.
The Federal Water Pollution
Control Act of 1972, or the Clean Water Act (the CWA), imposes restrictions
and controls on the discharge of produced waters and other pollutants into
navigable waters. Permits must be obtained to discharge pollutants into state
and federal waters and to conduct construction activities in waters and
wetlands. The CWA and certain state regulations prohibit the discharge of
produced water, sand, drilling fluids, drill cuttings, sediment and certain
other substances related to the oil and gas industry into certain coastal and
offshore waters without an individual or general National Pollutant Discharge
Elimination System discharge permit. In addition, the Clean Water Act and
analogous state laws require individual permits or coverage under general
permits for discharges of storm water runoff from certain types of facilities.
Some states also maintain groundwater protection programs that require permits
for discharges or operations that may impact groundwater conditions. Costs may
be associated with the treatment of wastewater and/or developing and
implementing storm water pollution prevention plans. The CWA and comparable
state statutes provide for civil, criminal and administrative penalties for
unauthorized discharges of oil and other pollutants and impose liability on
parties responsible for those discharges, for the costs of cleaning up any
environmental damage caused by the release and for natural resource damages
resulting from the release.
The underground injection of oil
and natural gas wastes are regulated by the Underground Injection Control
program authorized by the Safe Drinking Water Act. The primary objective of
injection well operating requirements is to ensure the mechanical integrity of
the injection apparatus and to prevent migration of fluids from the injection
zone into underground sources of drinking water. Substantially
all of the oil and natural gas production in which we have interest is developed
from unconventional sources that require hydraulic fracturing as part of the
completion process. Hydraulic fracturing involves the injection of water, sand
and chemicals under pressure into the formation to stimulate gas production.
Legislation to amend the Safe Drinking Water Act to repeal the exemption for
hydraulic fracturing from the definition of underground injection and require
federal permitting and regulatory control of hydraulic fracturing, as well as
legislative proposals to require disclosure of the chemical constituents of the
fluids used in the fracturing process, were proposed in recent sessions of
Congress. The U.S. Congress continues to consider legislation to amend the Safe
Drinking Water Act to address hydraulic fracturing operations.
14
Scrutiny of hydraulic fracturing
activities continues in other ways. The federal government is currently
undertaking several studies of hydraulic fracturings potential impacts. Several
states, including Montana and North Dakota, have also proposed or adopted
legislative or regulatory restrictions on hydraulic fracturing. A number of
municipalities in other states, including Colorado and Texas, have enacted bans
on hydraulic fracturing. New York States ban on hydraulic fracturing was
recently upheld by the Courts. In Colorado, the Colorado Supreme Court has ruled
the municipal bans were preempted by state law. We cannot predict whether any
other legislation will ever be enacted and if so, what its provisions would be.
If additional levels of regulation and permits were required through the
adoption of new laws and regulations at the federal or state level, which could
lead to delays, increased operating costs and process prohibitions that would
materially adversely affect our potential for revenue and results of operations.
The National Environmental Policy
Act (NEPA) establishes a national environmental policy and goals for the
protection, maintenance and enhancement of the environment and provides a
process for implementing these goals within federal agencies. A major federal
agency action having the potential to significantly impact the environment
requires review under NEPA. Many of the activities of our third-party operating
partners are covered under categorical exclusions which results in a shorter
NEPA review process. The Council on Environmental Quality has announced an
intention to reinvigorate NEPA reviews and on March 12, 2012, issued final
guidance that may result in longer review processes that could lead to delays
and increased costs that could materially adversely affect our potential for
revenues and results of operations.
Climate Change
Significant studies and research
have been devoted to climate change, and climate change has developed into a
major political issue in the United States and globally. Certain research
suggests that greenhouse gas emissions contribute to climate change and pose a
threat to the environment. Recent scientific research and political debate has
focused in part on carbon dioxide and methane incidental to oil and natural gas
exploration and production.
In the United States, legislative
and regulatory initiatives are underway to limit greenhouse gas (GHG)
emissions. The U.S. Congress has considered legislation that would control GHG
emissions through a cap and trade program and several states have already
implemented programs to reduce GHG emissions. The U.S. Supreme Court determined
that GHG emissions fall within the federal Clean Air Act, or the CAA, definition
of an air pollutant. In response, the EPA promulgated an endangerment finding
paving the way for regulation of GHG emissions under the CAA. In 2010, the EPA
issued a final rule, known as the Tailoring Rule, that makes certain large
stationary sources and modification projects subject to permitting requirements
for greenhouse gas emissions under the Clean Air Act. On June 23, 2014, the U.S.
Supreme Court in Utility Air Regulatory Group v. EPA held that the EPAs
Tailoring Rule was invalid, but held that if a source was subject to
Prevention of Significant Deterioration (PSD) or Title V based on emissions of
conventional pollutants like sulfur dioxide, particulates, nitrogen dioxide,
carbon monoxide, ozone or lead, then the EPA could also require the source to
control GHG emissions and the source would have to install Best Available
Control Technology to do so. As a result, a source no longer is required to meet
PSD and Title V permitting requirements based solely on its GHG emissions, but
may still have to control GHG emissions if it is an otherwise regulated source.
On February 23, 2014, Colorado
became the first state in the nation to adopt rules to control methane emissions
from oil and gas facilities. On June 3, 2016, EPA issued three final rules that
were intended to curb emissions of methane, VOCs and toxic air pollutants such
as benzene from new, reconstructed and modified oil and gas sources. These new
regulations include leak detection and repair provisions, and may require
controls to reduce methane emissions from certain oil and gas facilities. To the
extent our third party operating partners are required to further control
methane emissions, such controls could impact our business.
15
In addition, in September 2009,
the EPA issued a final rule requiring the reporting of GHGs from specified large
GHG emission sources in the United States beginning in 2011 for emissions in
2010. On November 30, 2010, the EPA published a final rule expanding its
existing GHG emissions reporting to include onshore and offshore oil and natural
gas systems beginning in 2012. Our third party operating partners are required
to report their greenhouse gas emissions under these rules. Because regulation
of GHG emissions is relatively new, further regulatory, legislative and judicial
developments are likely to occur. Such developments may affect how these GHG
initiatives will impact us. Moreover, while the U.S. Supreme Court held in its
June 2011 decision American Electric Power Co. v. Connecticut that, with respect
to claims concerning GHG emissions, the federal common law of nuisance was
displaced by the federal Clean Air Act, the Court left open the question of
whether tort claims against sources of GHG emissions alleging property damage
may proceed under state common law. There thus remains some litigation risk for
such claims. Due to the uncertainties surrounding the regulation of and other
risks associated with GHG emissions, we cannot predict the financial impact of
related developments on us.
Legislation or regulations that
may be adopted to address climate change could also affect the markets for our
products by making our products more or less desirable than competing sources of
energy. To the extent that our products are competing with higher greenhouse gas
emitting energy sources, our products would become more desirable in the market
with more stringent limitations on greenhouse gas emissions. To the extent that
our products are competing with lower GHG emitting energy sources such as solar
and wind, our products would become less desirable in the market with more
stringent limitations on greenhouse gas emissions. We cannot predict with any
certainty at this time how these possibilities may affect our operations.
The majority of scientific
studies on climate change suggest that stronger storms may occur in the future
in the areas where we operate, although the scientific studies are not
unanimous. Although operators may take steps to mitigate physical risks from
storms, no assurance can be given that future storms will not have a material
adverse effect on our business.
Subsidiaries
We have two wholly-owned
subsidiaries, Alta Disposal Ltd. (Alta Disposal) and Black Box Energy, Inc.
(Black Box Energy), and a 51% owned subsidiary, Alta Disposal Morinville Ltd.
(ADM). Alta Disposal was incorporated in the province of Alberta, Canada on
July 8, 2011. This subsidiary was formed to stake MAIM (Metallic and Industrial
Mineral) rights in Alberta which subsequently lapsed or were sold. Black Box
Energy was incorporated on September 9, 2016 in the State of Nevada for the
purposes of acquiring a 50% working interest in the McKean County Project. ADM
(formerly Blue Tap Resources, Inc.) is an Alberta, Canada corporation. On
September 4, 2015, we sold substantially all of the assets, business and
undertaking of ADM.
Employees
As of June 30, 2017, we had 2
full-time employees. We intend to hire additional staff and to engage
consultants in general administration on an as-needed basis. We also may engage
experts in general business to advise us in various capacities.
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ITEM 1A. RISK FACTORS
You should carefully consider the
risks described below together with all of the other information included in our
public filings before making an investment decision with regard to our
securities. The statements contained in or incorporated into this document that
are not historic facts are forward-looking statements that are subject to risks
and uncertainties that could cause actual results to differ materially from
those set forth in or implied by forward-looking statements. If any of the
following events described in these risk factors actually occurs, our business,
financial condition or results of operations could be harmed. In that case, the
trading price of our common stock could decline, and you may lose all or part of
your investment. Moreover, additional risks not presently known to us or that we
currently deem less significant also may impact our business, financial
condition or results of operations, perhaps materially. For additional
information regarding risk factors, see Item 1 Forward-Looking Statements.
17
Risks Related to Our Business
We have a limited operating
history and as a result there is no assurance we can operate on a profitable
basis.
We have a limited operating
history, and our operations will be subject to all the uncertainties arising
from the absence of a significant operating history. Potential investors should
be aware of the difficulties normally encountered by resource exploration
companies and the high rate of failure of such enterprises. The likelihood of
success must be considered in light of the problems, expenses, difficulties,
complications and delays encountered in connection with the exploration of the
properties that we plan to undertake. These potential problems include, but are
not limited to, unanticipated problems relating to exploration, and additional
costs and expenses that may exceed current estimates. The expenditures to be
made by us in the exploration of our properties may not result in the discovery
of reserves. Problems such as unusual or unexpected formations of rock or land
and other conditions are involved in resource exploration and often result in
unsuccessful exploration efforts. If the results of our exploration do not
reveal viable commercial reserves, we may decide to abandon our claims and
acquire new claims for new exploration or cease operations. The acquisition of
additional claims will be dependent upon us possessing capital resources at the
time in order to purchase such claims. If no funding is available, we may be
forced to abandon our operations. There can be no assurance that we will be able
to operate on a profitable basis.
If we do not continue to
obtain additional financing, our business will fail and our investors could lose
their investment.
We had cash in the amount of
$33,136 and working capital deficiency (current liabilities exceeding current
assets) of $6,934,640 as of the year ended June 30, 2017. We currently do not
generate much revenue from our operations. Any direct acquisition of a claim
under lease or option is subject to our ability to obtain the financing
necessary for us to fund and carry out exploration programs on potential
properties. The requirements are substantial. Obtaining additional financing
would be subject to a number of factors, including market prices for resources,
investor acceptance of our properties and investor sentiment. These factors may
negatively affect the timing, amount, terms or conditions of any additional
financing available to us. The most likely source of future funds presently
available to us is through the sale of equity capital, convertible loans or
other equity-linked securities. Any sale of share capital will result in
dilution to existing shareholders.
Risks Related to Our Mineral Exploration Business
Because of the speculative
nature of exploration of mineral properties, we may never discover a
commercially exploitable quantity of minerals, our business may fail and
investors may lose their entire investment.
We are in the very early
exploration stage and cannot guarantee that our exploration work will be
successful, or that any minerals will be found, or that any production of
minerals will be realized. The search for valuable minerals as a business is
extremely risky. Substantial investment will be required to move our company
toward the production of minerals. This may require bringing in a partner to
make the necessary investment, but there are no plans at this time for any form
of partnership or merger. We can provide investors with no assurance that
exploration on our properties will establish that commercially exploitable
reserves of minerals exist on our property. Additional potential problems that
may prevent us from discovering any reserves of minerals on our property
include, but are not limited to, unanticipated problems relating to exploration
and additional costs and expenses that may exceed current estimates. If we are
unable to establish the presence of commercially exploitable reserves of
minerals on our property, our ability to fund future exploration activities will
be impeded, we will not be able to operate profitably and investors may lose all
of their investment in our company.
We have no known mineral
reserves and we may not find any lithium and, even if we find lithium, it may
not be in economic quantities. If we fail to find any lithium or if we are
unable to find lithium in economic quantities, we will have to suspend
operations.
We have no known mineral
reserves. Additionally, even if we find lithium in sufficient quantity to
warrant recovery, it ultimately may not be recoverable. Finally, even if any
lithium is recoverable, we do not know that this can be done at a profit. Failure to locate lithium in
economically recoverable quantities will cause us to suspend operations.
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Supplies needed for
exploration may not always be available. If we are unable to secure exploration
supplies we may have to delay our anticipated business operations.
Competition and unforeseen
limited sources of supplies needed for our proposed exploration work could
result in occasional spot shortages of supplies of certain products, equipment
or materials. There is no guarantee we will be able to obtain certain products,
equipment and/or materials as and when needed, without interruption, or on
favorable terms. Such delays could affect our anticipated business operations
and increase our expenses.
Because of the unique
difficulties and uncertainties inherent in mineral exploration ventures, we face
a high risk of business failure.
Potential investors should be
aware of the difficulties normally encountered by new mineral exploration
companies and the high rate of failure of such enterprises. The likelihood of
success must be considered in light of the problems, expenses, difficulties,
complications and delays encountered in connection with the exploration of the
mineral properties that we plan to undertake. These potential problems include,
but are not limited to, unanticipated problems relating to exploration, and
additional costs and expenses that may exceed current estimates. The
expenditures to be made by us in the exploration of the mineral claim may not
result in the discovery of mineral deposits. Problems such as unusual or
unexpected formations and other conditions are involved in mineral exploration
and often result in unsuccessful exploration efforts. If the results of our
exploration do not reveal viable commercial mineralization, we may decide to
abandon our claims. If this happens, our business will likely fail.
The marketability of natural
resources will be affected by numerous factors beyond our control, which may
result in us not receiving an adequate return on invested capital to be
profitable or viable.
The marketability of natural
resources, which may be acquired or discovered by us, will be affected by
numerous factors beyond our control. These factors include market fluctuations
in lithium pricing and demand, the proximity and capacity of natural resource
markets and processing equipment, governmental regulations, land tenure, land
use, regulation concerning the importing and exporting of mineral resources and
environmental protection regulations. The exact effect of these factors cannot
be accurately predicted, but the combination of these factors may result in us
not receiving an adequate return on invested capital to be profitable or viable.
Exploration and production
activities are subject to certain environmental regulations, which may prevent
or delay the commencement or continuation of our operations.
In general, our exploration and
production activities are subject to certain federal, state and local laws and
regulations relating to environmental quality and pollution control. Such laws
and regulations increase the costs of these activities and may prevent or delay
the commencement or continuation of a given operation. Specifically, we may be
subject to legislation regarding emissions into the environment, water
discharges and storage and disposition of hazardous wastes. In addition,
legislation has been enacted which requires well and facility sites to be
abandoned and reclaimed to the satisfaction of state authorities. However, such
laws and regulations are frequently changed and we are unable to predict the
ultimate cost of compliance. Generally, environmental requirements do not appear
to affect us any differently or to any greater or lesser extent than other
companies in the industry.
Any change to government
regulation/administrative practices may have a negative impact on our ability to
operate and our profitability.
The business of mineral
exploration and development is subject to substantial regulation under various
countries laws relating to the exploration for, and the development, upgrading,
marketing, pricing, taxation, and transportation of mineral resources and
related products and other matters. Amendments to current laws and regulations
governing operations and activities of mineral exploration and development
operations could have a material adverse impact on our business. In addition,
there can be no assurance that income tax laws, royalty regulations and
government incentive programs related to the properties and the mineral
exploration industry generally will not be changed in a manner which may adversely
affect our progress and cause delays, inability to explore and develop or
abandonment of these interests.
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Permits, leases, licenses, and
approvals are required from a variety of regulatory authorities at various
stages of exploration and development. There can be no assurance that the
various government permits, leases, licenses and approvals sought will be
granted in respect of our activities or, if granted, will not be cancelled or
will be renewed upon expiry. There is no assurance that such permits, leases,
licenses, and approvals will not contain terms and provisions, which may
adversely affect our exploration and development activities.
If we are unable to hire and
retain key personnel, we may not be able to implement our business plan.
Our success is largely dependent
on our ability to hire highly qualified personnel. This is particularly true in
highly technical businesses such as resource exploration. These individuals are
in high demand and we may not be able to attract the personnel we need. In
addition, we may not be able to afford the high salaries and fees demanded by
qualified personnel, or may lose such employees after they are hired. Failure to
hire key personnel when needed, or on acceptable terms, would have a significant
negative effect on our business.
Planned exploration, and if warranted, development and
mining activities involve a high degree of risk.
We cannot provide assurance of
the success of our planned operations. Exploration costs are not fixed, and
resources cannot be reliably identified until substantial development has taken
place, which entails high exploration and development costs. The costs of
mining, processing, development and exploitation activities are subject to
numerous variables, which could result in substantial cost overruns. Mining for
base or precious metals may involve unprofitable efforts, not only from dry
properties, but from properties that are productive but do not produce
sufficient net revenues to return a profit after accounting for mining,
operating and other costs.
Our operations may be curtailed,
delayed or cancelled as a result of numerous factors, many of which are beyond
our control, including economic conditions, mechanical problems, title problems,
weather conditions, compliance with governmental requirements and shortages or
delays of equipment and services.
We do not insure against all
risks associated with our business because insurance is either unavailable or
its cost of coverage is prohibitive. The occurrence of an event that is not
covered by insurance could have a material adverse effect on our financial
condition.
The impact of government regulation could adversely affect
our business.
Our business is subject to
applicable domestic and foreign laws and regulations, including laws and
regulations on taxation, exploration, and environmental and safety matters. Many
laws and regulations govern the spacing of mines, rates of production,
prevention of waste and other matters. These laws and regulations may increase
the costs and timing of planning, designing, drilling, installing, operating and
abandoning our mines and other facilities. In addition, our operations are
subject to complex environmental laws and regulations adopted by domestic and
foreign jurisdictions where we operate. We could incur liability to governments
or third parties for any unlawful discharge of pollutants into the air, soil or
water, including responsibility for remedial costs.
The submission and approval of environmental impact
assessments may be required.
Environmental legislation is
evolving in a manner which means stricter standards, enforcement, fines and
penalties for noncompliance are more stringent. Environmental assessments of
proposed projects carry a heightened degree of responsibility for companies and
directors, officers and employees. The cost of compliance with changes in
governmental regulations has a potential to reduce the profitability of
operations. Because the requirements imposed by these laws and regulations
frequently change, we cannot provide assurance that laws and regulations enacted
in the future, including changes to existing laws and regulations, will not
adversely affect our business.
20
Decline in mineral prices may
make it commercially infeasible for us to develop our property and may cause our
stock price to decline.
The value and price of an
investment in our common shares, our financial results, and our exploration,
development and mining activities may be significantly adversely affected by
declines in the price of minerals and other precious metals. Mineral prices
fluctuate widely and are affected by numerous factors beyond our control, such
as interest rates, exchange rates, inflation or deflation, fluctuation in the
value of the United States dollar and foreign currencies, global and regional
supply and demand, and the political and economic conditions of
mineral-producing countries throughout the world. The price of minerals
fluctuates in response to many factors, which are beyond anyones prediction
abilities. The prices used in making the estimates in our plans differ from
daily prices quoted in the news media. Because mining occurs over a number of
years, it may be prudent to continue mining for some periods during which cash
flows are temporarily negative for a variety of reasons. Such reasons include a
belief that the low price is temporary, and/or the expense incurred is greater
when permanently closing a mine.
We may not have access to all
of the supplies and materials we need to begin exploration, which could cause us
to delay or suspend operations.
Competition and unforeseen
limited sources of supplies in the industry could result in occasional spot
shortages of supplies such as dynamite as well as certain equipment like
bulldozers and excavators that we might need to conduct exploration. If we
cannot obtain the necessary supplies, we will have to suspend our exploration
plans until we do obtain such supplies.
Risks Related to Our SonCav Technology
The market for our product may be limited, and as a result
our business may be adversely affected.
The feasibility of marketing our
product has been assumed to this point and there can be no assurance that such
assumptions are correct. It is possible that the costs of development and
implementation of our SonCav technology may be too expensive to market at a
competitive price. It is likewise possible that competing technologies will be
introduced into the marketplace before or after the introduction of our product
to the market, which may affect our ability to market our product at a
competitive price.
Furthermore, there can be no
assurance that the prices we determine to charge for our product will be
commercially acceptable or that the prices that may be dictated by the market
will be sufficient to provide to us sufficient revenues to profitably operate
and provide a financial return to our investors.
Our success is dependent upon our ability to commercialize
our SonCav technology.
We have not commenced commercial
operations. Up through the date of this report, we have been engaged principally
in the research and development of the SonCav technology. Therefore, we have a
limited operating history upon which an evaluation of our prospects can be made.
Our prospects must be considered in light of the risk, uncertainties, expenses,
delays and difficulties associated with the establishment of a new business in
the oil and gas services industry, as well as those risks encountered in the
shift from development to commercialization of new technology and products or
services based upon such technology.
We have developed our first
commercial system, but additional work is required to incorporate that
technology into a system capable of accommodating hundreds of customers, which
is the minimum capability we believe is necessary to compete in the marketplace.
Our success is dependent upon our ability to protect our
intellectual property.
Our success will depend in part
on our ability to obtain and enforce protection for our intellectual property in
the United States and other countries. It is possible that our intellectual
property protection could fail. It is possible that the claims for patents or
other intellectual property protections could be denied or invalidated or that
our protections will not be sufficiently broad to protect our technology. It is
also possible that our intellectual property will not provide protection against
competitive products, or will not otherwise be commercially viable.
21
Our commercial success will
depend in part on our ability to commercialize the production of our technology
without infringing on patents or proprietary rights of others. We cannot
guarantee that other companies or individuals have not or will not independently
develop substantially equivalent proprietary rights or that other parties have
not or will not be issued patents that may prevent the sale of our products or
require licensing and the payment of significant fees or royalties in order for
us to be able to carry on our business.
Risks Related to Our Oil & Gas Exploration Business
Oil and natural gas prices are
volatile. The continuing and extended decline in oil and natural gas prices has
adversely affected, and could continue to adversely affect, our business,
financial position, results of operations and cash flow.
The oil and natural gas markets
are very volatile, and we cannot predict future oil and natural gas prices. Oil
and natural gas prices declined significantly and have remained depressed since
late 2014. The prices we expect to receive for our oil and natural gas
production in the future heavily influences our revenue, profitability, access
to capital and future rate of growth.
The prices we expect to receive
for our production and the levels of our production depend on numerous factors
beyond our control. These factors include, but are not limited to, the
following:
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changes in global supply and demand for oil and
natural gas;
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the actions of OPEC and other major oil
producing countries;
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the price and quantity of imports of foreign
oil and natural gas;
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political and economic conditions, including
embargoes, in oil-producing countries or affecting other oil- producing
activity;
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the level of global oil and natural gas
exploration and production activity;
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the level of global oil and natural gas
inventories;
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changes in U.S. energy policy under the current
administration;
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weather conditions;
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technological advances affecting energy
consumption;
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domestic and foreign governmental regulations;
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proximity and capacity of oil and natural gas
pipelines and other transportation facilities;
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the price and availability of competitors
supplies of oil and natural gas in captive market areas; and
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the price and availability of alternative
fuels.
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Lower oil and natural gas prices
have and, if they continue, will have an impact on our future revenues, the
amount of oil and natural gas that our operators can produce economically, and
our potential reserve bookings.
Our estimated reserves are
based on many assumptions that may prove to be inaccurate. Any material
inaccuracies in these reserve estimates or underlying assumptions will
materially affect the quantities and present value of our reserves.
Determining the amount of oil and
natural gas recoverable from various formations involves significant complexity
and uncertainty. No one can measure underground accumulations of oil or natural
gas in an exact way. Oil and natural gas reserve engineering requires subjective
estimates of underground accumulations of oil and/or natural gas and assumptions
concerning future oil and natural gas prices, production levels, and operating,
exploration and development costs. Some of our reserve estimates are made
without the benefit of a lengthy or no production history, and are less reliable
than estimates based on a lengthy production history. As a result, estimated
quantities of proved reserves and projections of future production rates and the
timing of development expenditures may prove to be inaccurate.
In the future, we expect to make
estimates of oil and natural gas reserves in connection with managing our
business and preparing reports to our lenders and investors. Such reserve
estimates may use various assumptions, including assumptions as to oil and
natural gas prices, development schedules, drilling and operating expenses, capital expenditures, taxes and availability of funds. Some of
these assumptions are inherently subjective, and the accuracy of any reserve
estimates relies in part on the ability of our management team, reserve
engineers and other advisors to make accurate assumptions. Any significant
variance from these assumptions by actual figures could greatly affect our
estimates of reserves, the economically recoverable quantities of oil, natural
gas and NGLs attributable to any particular group of properties, the
classifications of reserves based on risk of recovery, and estimates of the
future net cash flows.
22
Drilling for and producing
oil, natural gas and NGLs are high risk activities with many uncertainties that
could adversely affect our financial condition or results of operations.
Our operators drilling
activities in the future are subject to many risks, including the risk that they
will not discover commercially productive reservoirs. Drilling for oil or
natural gas can be uneconomical, not only from dry holes, but also from
productive wells that do not produce sufficient revenues to be commercially
viable. In addition, drilling and producing operations on our acreage may be
curtailed, delayed or canceled by our operators as a result of other factors,
including:
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declines in oil or natural gas prices;
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the high cost, shortages or delivery delays of equipment
and services;
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shortages of or delays in obtaining water for hydraulic
fracturing operations;
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unexpected operational events;
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adverse weather conditions;
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facility or equipment malfunctions;
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title problems;
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pipeline ruptures or spills;
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compliance with environmental and other governmental
requirements;
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regulations, restrictions, moratoria and bans on
hydraulic fracturing;
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unusual or unexpected geological formations;
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loss of drilling fluid circulation;
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formations with abnormal pressures;
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environmental hazards, such as oil, natural gas or well
fluids spills or releases, pipeline or tank ruptures and discharges of
toxic gas;
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fires;
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blowouts, craterings and explosions;
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uncontrollable flows of oil, natural gas or well fluids;
and
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pipeline capacity curtailments.
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Any of these events can cause
substantial losses, including personal injury or loss of life, damage to or
destruction of property, natural resources and equipment, pollution,
environmental contamination, loss of wells and regulatory penalties.
Our future success depends on our
ability to replace reserves that our operators produce.
Because the rate of production
from oil and natural gas properties generally declines as reserves are depleted,
our future success depends upon our ability to economically find or acquire and
produce additional oil and natural gas reserves. Except to the extent that we
acquire additional properties containing proved reserves, conduct successful
exploration and development activities or, through engineering studies, identify
additional behind-pipe zones or secondary recovery reserves, our proved reserves
will decline as our reserves are produced. Future oil and natural gas
production, therefore, is highly dependent upon our level of success in
acquiring or finding additional reserves that are economically recoverable. We
cannot assure you that we will be able to find or acquire and develop additional
reserves at an acceptable cost.
We may acquire significant
amounts of unproved property to further our development efforts. Development and
exploratory drilling and production activities are subject to many risks,
including the risk that no commercially productive reservoirs will be
discovered. We acquire both proved and producing properties as well as
undeveloped acreage that we believe will enhance growth potential and increase
our earnings over time. However, we cannot assure you that all of these properties will contain
economically viable reserves or that we will not abandon our initial
investments. Additionally, we cannot assure you that unproved reserves or
undeveloped acreage that we acquire will be profitably developed, that new wells
drilled on our properties will be productive or that we will recover all or any
portion of our investments in our properties and reserves.
23
Our lack of industry and
geographical diversification may increase the risk of an investment in our
company.
Our business focus is on the oil
and natural gas industry in a limited number of properties that are primarily in
the areas of McKean County, Pennsylvania and Sulphur, Louisiana. While other
companies may have the ability to manage their risk by diversification, the
narrow focus of our business, in terms of both the industry focus and geographic
scope of our business, means that we will likely be impacted more acutely by
factors affecting our industry or the region in which we operate than we would
if our business were more diversified. As a result of the narrow focus of our
business, we may be disproportionately exposed to the effects of regional supply
and demand factors, delays or interruptions of production from wells in this
area caused by governmental regulation, processing or transportation capacity
constraints, market limitations, weather events or interruption of the
processing or transportation of oil or natural gas. Additionally, we may be
exposed to further risks, such as changes in field-wide rules and regulations
that could cause us to permanently or temporarily shut-in all of our wells. We
do not currently intend to broaden either the nature or geographic scope of our
business.
Locations that the operators
of our properties decide to drill may not yield oil or natural gas in
commercially viable quantities.
The cost of drilling, completing
and operating a well is often uncertain, and cost factors can adversely affect
the economics of a well. Our efforts will be uneconomical if the operators of
our properties drill dry holes or wells that are productive but do not produce
enough to be commercially viable after drilling, operating and other costs. If
the operators of our properties drill future wells that are identified as dry
holes, the drilling success rate would decline and may adversely affect our
results of operations.
Our business depends on oil
and natural gas transportation and processing facilities and other assets that
are owned by third parties.
The marketability of our oil and
natural gas depends in part on the availability, proximity and capacity of
pipeline systems, processing facilities, oil trucking fleets and rail
transportation assets owned by third parties. The lack of available capacity on
these systems and facilities, whether as a result of proration, physical damage,
scheduled maintenance or other reasons, could result in a substantial increase
in costs, the shut-in of producing wells or the delay or discontinuance of
development plans for our properties. The negative effects arising from these
and similar circumstances may last for an extended period of time. In many
cases, operators are provided only with limited, if any, notice as to when these
circumstances will arise and their duration. In addition, many of our wells are
drilled in locations that are serviced only to a limited extent, if at all, by
gathering and transportation pipelines, which may or may not have sufficient
capacity to transport production from all of the wells in the area. As a result,
we rely on third party oil trucking to transport a significant portion of our
production to third party transportation pipelines, rail loading facilities and
other market access points. Any significant curtailment in gathering system or
pipeline capacity, or the unavailability of sufficient third party trucking or
rail capacity, could adversely affect our business, results of operations and
financial condition.
Seasonal weather conditions
adversely affect operators ability to conduct drilling activities in the areas
where our properties are located.
Seasonal weather conditions can
limit drilling and producing activities and other operations in our operating
areas and as a result, a majority of the drilling on our properties is generally
performed during the summer and fall months. These seasonal constraints can pose
challenges for meeting well drilling objectives and increase competition for
equipment, supplies and personnel during the summer and fall months, which could
lead to shortages and increase costs or delay operations. Additionally, many
municipalities impose weight restrictions on the paved roads that lead to
jobsites due to the muddy conditions caused by spring thaws. This could limit
access to jobsites and operators ability to service wells in these areas.
24
We may be unable to obtain additional capital that we will
require to implement our business plan.
Future acquisitions and future
exploration, development, production and marketing activities, will require a
substantial amount of capital. Borrowings under equity-linked securities may not
be sufficient to fund both our continuing operations and our planned growth. We
may require additional capital to continue to grow our business through
acquisitions and to further expand our exploration and development programs. We
may be unable to obtain additional capital if and when required.
We may pursue sources of
additional capital through various financing transactions or arrangements,
including joint venturing of projects, debt financing, equity financing or other
means. We may not be successful in consummating suitable financing transactions
in the time period required or at all, and we may not be able to obtain the
capital we require by other means. If the amount of capital we are able to raise
from financing activities, together with our cash from operations, is not
sufficient to satisfy our capital requirements, we may not be able to implement
our business plan and may be required to scale back our operations, sell assets
at unattractive prices or obtain financing on unattractive terms, any of which
could adversely affect our business, results of operations and financial
condition.
Our acquisition strategy will subject us to certain risks
associated with the inherent uncertainty in evaluating properties for which we
have limited information.
We have expanded our operations
in part through acquisitions. Our decision to acquire a property will depend in
part on the evaluation of data obtained from production reports and engineering
studies, geophysical and geological analyses and seismic and other information,
the results of which are often inconclusive and subject to various
interpretations. Also, our reviews of acquired properties are inherently
incomplete because it generally is not feasible to perform an in-depth review of
the individual properties involved in each acquisition. Even a detailed review
of records and properties may not necessarily reveal existing or potential
problems, nor will it permit us to become sufficiently familiar with the
properties to assess fully their deficiencies and potential. Inspections may not
always be performed on every well, and environmental problems, such as ground
water contamination, are not necessarily observable even when an inspection is
undertaken.
Any acquisition involves other
potential risks, including, among other things:
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the validity of our assumptions about reserves, future
production, revenues and costs;
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a significant increase in our interest expense or
financial leverage if we incur additional debt to finance acquisitions;
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dilution to shareholders if we use equity as
consideration for, or to finance, acquisitions;
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the assumption of unknown liabilities, losses or costs
for which we are not indemnified or for which our indemnity is inadequate;
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an inability to hire, train or retain qualified personnel
to manage and operate our growing business and assets; and
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an increase in our costs or a decrease in our revenues
associated with any potential royalty owner or landowner claims or
disputes.
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The loss of any member of our
management team, upon whose knowledge, relationships with industry participants,
leadership and technical expertise we rely could diminish our ability to conduct
our operations, and harm our ability to execute our business plan.
Our success depends heavily upon
the continued contributions of those members of our management team whose
knowledge, relationships with industry participants, leadership and technical
expertise would be difficult to replace. In particular, our ability to
successfully acquire additional properties, to increase our reserves, to
participate in drilling opportunities and to identify and enter into commercial
arrangements depends on developing and maintaining close working relationships
with industry participants. In addition, our ability to select and evaluate
suitable properties and to consummate transactions in a highly competitive
environment is dependent on our management teams knowledge and expertise in the
industry. To continue to develop our business, we rely on our management teams knowledge and expertise in the industry and
will use our management teams relationships with industry participants to enter
into strategic relationships, which may take the form of joint ventures with
other private parties and contractual arrangements with other oil and natural
gas companies.
25
Competition may limit our
ability to obtain rights to explore and develop oil and natural gas reserves.
The oil and natural gas industry
is highly competitive. Other oil and natural gas companies may seek to acquire
oil and natural gas leases and other properties and services we will need to
operate our business in the areas in which we expect to operate. This
competition is increasingly intense as prices of oil and natural gas on the
commodities markets have risen in recent years. Additionally, other companies
engaged in our line of business may compete with us from time to time in
obtaining capital from investors. Competitors include larger companies which, in
particular, may have access to greater resources, may be more successful in the
recruitment and retention of qualified employees and may conduct their own
refining and petroleum marketing operations, which may give them a competitive
advantage. In addition, actual or potential competitors may be strengthened
through the acquisition of additional assets and interests. If we are unable to
compete effectively or respond adequately to competitive pressures, our results
of operation and financial condition may be materially adversely affected.
Market conditions or
operational impediments may hinder our access to oil and natural gas markets or
delay our production.
Market conditions or the
unavailability of satisfactory oil and natural gas transportation arrangements
may hinder our access to oil and natural gas markets or delay our production.
The availability of a ready market for our oil and natural gas production
depends on a number of factors, including the demand for and supply of oil and
natural gas and the proximity of reserves to pipelines and terminal facilities.
Our ability to market our production depends, in substantial part, on the
availability and capacity of gathering systems, pipelines and processing
facilities owned and operated by third-parties. Our failure to obtain such
services on acceptable terms could materially harm our business. We may be
required to shut in wells due to lack of a market or inadequacy or
unavailability of crude oil or natural gas pipelines or gathering system
capacity. If our production becomes shut-in for any of these or other reasons,
we would be unable to realize revenue from those wells until other arrangements
were made to deliver the products to market.
Our business is subject to
complex federal, state, local and other laws and regulations that could
adversely affect the cost, manner or feasibility of doing business.
Our operational interests, as
operated by our third-party operating partners, are regulated extensively at the
federal, state, tribal and local levels. Environmental and other governmental
laws and regulations have increased the costs to plan, design, drill, install,
operate and abandon oil and natural gas wells. Under these laws and regulations,
our company (either directly or indirectly through our operating partners) could
also be liable for personal injuries, property and natural resource damage and
other damages. Failure to comply with these laws and regulations may result in
the suspension or termination of our business and subject us to administrative,
civil and criminal penalties. Moreover, public interest in environmental
protection has increased in recent years, and environmental organizations have
opposed, with some success, certain drilling projects.
Part of the regulatory
environment in which we do business includes, in some cases, legal requirements
for obtaining environmental assessments, environmental impact studies and/or
plans of development before commencing drilling and production activities. In
addition, our activities are subject to the regulations regarding conservation
practices and protection of correlative rights. These regulations affect our
business and limit the quantity of natural gas we may produce and sell. A major
risk inherent in the drilling plans in which we participate is the need for our
operators to obtain drilling permits from state and local authorities. Delays in
obtaining regulatory approvals or drilling permits, the failure to obtain a
drilling permit for a well or the receipt of a permit with unreasonable
conditions or costs could have a material adverse effect on the development of
our properties. Additionally, the oil and natural gas regulatory environment
could change in ways that might substantially increase the financial and
managerial costs of compliance with these laws and regulations and,
consequently, adversely affect our profitability. At this time, we cannot
predict the effect of this increase on our results of operations.Furthermore, we may be put at a competitive disadvantage to
larger companies in our industry that can spread these additional costs over a
greater number of wells and larger operating staff.
26
Environmental risks may adversely affect our business.
All phases of the oil and natural
gas business can present environmental risks and hazards and are subject to
environmental regulation pursuant to a variety of federal, state and municipal
laws and regulations. Environmental legislation provides for, among other
things, restrictions and prohibitions on spills, releases or emissions of
various substances produced in association with oil and natural gas operations.
The legislation also requires that wells and facility sites be operated,
maintained, abandoned and reclaimed to the satisfaction of applicable regulatory
authorities. There is risk of incurring significant environmental costs and
liabilities as a result of the handling of petroleum hydrocarbons and wastes,
air emissions and wastewater discharges related to our business, and historical
operations and waste disposal practices. Failure to comply with these laws and
regulations may result in the assessment of administrative, civil and criminal
penalties, loss of our leases, incurrence of investigatory or remedial
obligations and the imposition of injunctive relief.
Environmental legislation is
evolving in a manner we expect may result in stricter standards and enforcement,
larger fines and liability and potentially increased capital expenditures and
operating costs. The discharge of oil, natural gas or other pollutants into the
air, soil or water may give rise to liabilities to governments and third parties
and may require us to incur costs to remedy such discharge, regardless of
whether we were responsible for the release or contamination and regardless of
whether our operating partners met previous standards in the industry at the
time they were conducted. In addition, claims for damages to persons, property
or natural resources may result from environmental and other impacts of
operations on our properties. The application of environmental laws to our
business may cause us to curtail production or increase the costs of our
production, development or exploration activities.
Federal and state legislative
and regulatory initiatives relating to hydraulic fracturing could result in
increased costs and additional operating restrictions or delays.
Hydraulic fracturing is used
extensively by our third-party operating partners. The hydraulic fracturing
process is typically regulated by state oil and natural gas commissions.
Hydraulic fracturing involves the injection of water, sand and chemicals under
pressure into formations to fracture the surrounding rock and stimulate
production. The Safe Drinking Water Act (the SDWA) regulates the underground
injection of substances through the Underground Injection Control (UIC)
program. While hydraulic fracturing generally is exempt from regulation under
the UIC program, the EPA has taken the position that hydraulic fracturing with
fluids containing diesel fuel is subject to regulation under the UIC program as
Class II UIC wells. On October 21, 2011, the EPA announced its intention to
propose federal Clean Water Act regulations governing wastewater discharges from
hydraulic fracturing and certain other natural gas operations. In addition, the
Department of Interior (DOI) published a revised proposed rule on May 24, 2013
that would update existing regulation of hydraulic fracturing activities on
Federal and Indian lands, including requirements for disclosure, well bore
integrity and handling of flowback water. The final rule was issued on March 26,
2015.
The EPA has commenced a study of
the potential environmental impacts of hydraulic fracturing activities, and a
committee of the U.S. House of Representatives is also conducting an
investigation of hydraulic fracturing practices. The EPA issued a Progress
Report in December 2012. In March 2013, the EPAs Scientific Advisory Board
(SAB) formed an ad hoc panel of experts who are reviewing the Progress Report
on the study. The draft assessment was released for public comment and peer
review on June 5, 2015 and a final assessment was released in December 2016
generally concluding that hydraulic fracturing activities can impact drinking
water resources in some circumstances and identifying factors that can influence
the impacts. As part of these studies, both the EPA and the House committee have
requested that certain companies provide them with information concerning the
chemicals used in the hydraulic fracturing process. These studies could spur
initiatives to regulate hydraulic fracturing under the SDWA or otherwise.
Congress has in recent legislative sessions considered legislation to amend the
SDWA, including legislation that would repeal the exemption for hydraulic
fracturing from the definition of underground injection and require federal
permitting and regulatory control of hydraulic fracturing, as well as
legislative proposals to require disclosure of the chemical constituents of the
fluids used in the fracturing process, were proposed in recent sessions of Congress. The U.S. Congress
may consider similar SDWA legislation in the future.
27
On August 16, 2012, the EPA
published final regulations under the Clean Air Act (CAA) that establish new
air emission controls for oil and natural gas production and natural gas
processing operations. Specifically, the EPA promulgated New Source Performance
Standards (NSPS) establishing emission limits for sulfur dioxide (SO2) and
volatile organic compounds (VOCs). The final rule requires a 95% reduction in
VOCs emitted by mandating the use of reduced emission completions or green
completions on all hydraulically-fractured gas wells constructed or refractured
after January 1, 2015. Until this date, emissions from fractured and refractured
gas wells must be reduced through reduced emission completions or combustion
devices. The rules also establish new requirements regarding emissions from
compressors, controllers, dehydrators, storage tanks and other production
equipment. In response to numerous requests for reconsideration of these rules
from both industry and the environmental community and court challenges to the
final rules, the EPA announced its intention to issue revised rules in 2013. The
EPA published revised portions of these rules on September 23, 2013 for VOC
emissions for production oil and gas storage tanks, in part phasing in emissions
controls on storage tanks past October 15, 2013. On December 19, 2014, the EPA
published updates to its NSPS for the oil and gas industry. The most recent
proposed update to the oil and gas NSPS came on June 3, 2016, when the EPA
finalized further amendments that address methane emissions from certain oil and
gas facilities.
A number of lawsuits and
enforcement actions have been initiated across the country alleging that
hydraulic fracturing practices have adversely impacted drinking water supplies,
use of surface water, and the environment generally. If new laws or regulations
that significantly restrict hydraulic fracturing, such as amendments to the
SDWA, are adopted, such laws could make it more costly for us and difficult for
our third party operating partners to perform fracturing to stimulate production
from tight formations as well as make it easier for third parties opposing the
hydraulic fracturing process to initiate legal proceedings based on allegations
that specific chemicals used in the fracturing process could adversely affect
groundwater. In addition, if hydraulic fracturing is further regulated at the
federal or state level, our third-party operating partners fracturing activities
could become subject to additional permitting and financial assurance
requirements, more stringent construction specifications, increased monitoring,
reporting and recordkeeping obligations, plugging and abandonment requirements
and also to attendant permitting delays and potential increases in costs.
Any such federal or state
legislative or regulatory changes with respect to hydraulic fracturing could
cause us to incur substantial compliance costs or result in operational delays,
and the consequences of any failure to comply by us or our third-party operating
partners could have a material adverse effect on our financial condition and
results of operations. Until such pending or threatened legislation or
regulations are finalized and implemented, it is not possible to estimate their
impact on our business.
Any of the above risks could
impair our ability to manage our business and have a material adverse effect on
our operations, cash flows and financial position.
Climate change legislation or
regulations restricting emissions of greenhouse gases could result in
increased operating costs and reduced demand for the oil and natural gas that we
produce.
The EPA has determined that
emissions of certain greenhouse gases (GHG) present an endangerment to
public health and the environment because emissions of such gases are, according
to the EPA, contributing to warming of the earths atmosphere and other climatic
changes. Based on its findings, the EPA has begun adopting and implementing
regulations to restrict emissions of greenhouse gases under existing provisions
of the Clean Air Act (the CAA). On September 22, 2009, the EPA issued a final
rule requiring the reporting of greenhouse gas emissions from specified large
greenhouse gas emission sources in the U.S. beginning in 2011 for emissions
occurring in 2010. On November 30, 2010, the EPA published a final rule
expanding its existing greenhouse gas emissions reporting rule to include
certain petroleum and natural gas facilities, which rule requires data
collection beginning in 2011 and reporting beginning in 2012. Our operating
partners were required to report certain of their greenhouse gas emissions under
this rule by September 28, 2012. On May 12, 2010, the EPA also issued a
tailoring rule, which makes certain large stationary sources and modification
projects subject to permitting requirements for greenhouse gas emissions under
the CAA. On June 23, 2014, the U.S. Supreme Court in Utility Air Regulatory
Group v. EPA held that the EPAs Tailoring Rule was invalid, but held that if
a source was subject to PSD or Title V based on emissions of conventional pollutants
like sulfur dioxide, particulates, nitrogen or dioxide, carbon monoxide, ozone
and lead, then the EPA could also require the source to control GHGS and would
have to install Best Available Control Technology to do so. As a result, a
source no longer is required to meet PSD and Title V permitting requirements
based solely on its GHG emissions. On February 23, 2014, Colorado became the
first state in the nation to adopt rules to control methane emissions from
Colorado oil and gas facilities. Subsequently, the Obama administration has
approved rules that would require controls on methane emissions from oil and gas
facilities. In addition, the EPA has continued to adopt GHG regulations of other
industries, such as the October 23, 2015, promulgation of emission guidelines
for GHG emissions from existing electric utility generating units (the Clean
Power Plan). This plan requires states to regulate carbon dioxide emissions
from utility operations, with a long-term goal of 30% reduction below 2005 rates
of CO2 from electric utilities by the year 2030. An expected outcome of this
plan is that use of coal as a main fuel source for electric utilities would be
replaced by use of lower-emitting products, including natural gas and wind and
solar energy. Implementation of the Clean Power Plan is currently stayed pending
court review. As a result of this continued regulatory focus, future GHG
regulations of the oil and gas industry remain a possibility.
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In addition, the U.S. Congress
has from time to time considered adopting legislation to reduce emissions of
greenhouse gases, though it is yet to do so, and almost one-half of the states
have already taken legal measures to reduce emissions of greenhouse gases
primarily through the planned development of greenhouse gas emission inventories
and/or regional greenhouse gas cap and trade programs. Most of these cap and
trade programs work by requiring major sources of emissions, such as electric
power plants or major producers of fuels, such as refineries and gas processing
plants, to acquire and surrender emission allowances that correspond to their
annual emissions of GHGs. The number of allowances available for purchase is
reduced each year in an effort to achieve the overall GHG reduction goal. As the
number of GHG emission allowances declines each year, the cost or value of such
allowances is expected to escalate significantly. The adoption of legislation or
regulatory programs to reduce emissions of greenhouse gases could require our
third-party operating partners, and indirectly us, to incur increased operating
costs, such as costs to purchase and operate emissions control systems, to
acquire emissions allowances or comply with new regulatory or reporting
requirements. Any such legislation or regulatory programs could also increase
the cost of consuming, and thereby reduce demand for, the oil and natural gas
produced by our operational interests. Consequently, legislation and regulatory
programs to reduce emissions of greenhouse gases could have an adverse effect on
our business, financial condition and results of operations.
Regulation of GHG emissions could
also result in reduced demand for our production, as oil and natural gas
consumers seek to reduce their own GHG emissions. Any regulation of GHG
emissions, including through a cap-and-trade system, technology mandate,
emissions tax, reporting requirement or other program, could have a material
adverse effect on our business, results of operations and financial condition.
In addition, to the extent climate change results in more severe weather and
significant physical effects, such as increased frequency and severity of
storms, floods, droughts and other climatic effects, our own, our third-party
operating partners or our customers operations may be disrupted, which could
result in a decrease in our available products or reduce our customers demand
for our products.
Further, there have been various
legislative and regulatory proposals at the federal and state levels to provide
incentives and subsidies to (i) shift more power generation to renewable energy
sources and (ii) support technological advances to drive less energy
consumption. These incentives and subsidies could have a negative impact on oil,
natural gas and NGL consumption.
Any of the above risks could
impair our ability to manage our business and have a material adverse effect on
our operations, cash flows and financial position.
Because we have no plans to
pay, and are currently restricted from paying dividends on our common stock,
investors must look solely to stock appreciation for a return on their
investment in us.
We do not anticipate paying any
cash dividends on our common stock in the foreseeable future. We currently
intend to retain all future earnings to fund the development and growth of our
business. Any payment of future dividends will be at the discretion of our board
of directors and will depend on, among other things, our earnings, financial
condition, capital requirements, level of indebtedness, statutory and
contractual restrictions applying to the payment of dividends and other
considerations that our board of directors deems relevant. Investors must rely on sales of their common stock after price
appreciation, which may never occur, as the only way to realize a return on
their investment.
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Risks Related to Financing Our Business
Our independent registered
public accounting firm has issued its audit opinion on our consolidated
financial statements appearing in our annual report on Form 10-K, including an
explanatory paragraph as to substantial doubt with the respect to our ability to
continue as a going concern.
The accompanying consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States of America, assuming we will continue as a going concern, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. For the year ended June 30, 2017, we had net loss of
approximately $6.8 million. At June 30, 2017, we had an accumulated deficit of
approximately $57 million and a working capital deficit of approximately $7
million. These factors raise substantial doubt about our ability to continue as
a going concern, within one year from the issuance date of this filing. Our
ability to continue as a going concern is dependent on our ability to raise the
required additional capital or debt financing to meet short and long-term
operating requirements. We may also encounter business endeavors that require
significant cash commitments or unanticipated problems or expenses that could
result in a requirement for additional cash. If we raise additional funds
through the issuance of equity or convertible debt securities, the percentage
ownership of our current shareholders could be reduced, and such securities
might have rights, preferences or privileges senior to our common stock.
Additional financing may not be available upon acceptable terms, or at all. If
adequate funds are not available or are not available on acceptable terms, we
may not be able to take advantage of prospective business endeavors or
opportunities, which could significantly and materially restrict our operations.
If we are unable to obtain the necessary capital, we may have to cease
operations.
Expansion of our operations
will require significant capital expenditures for which we may be unable to
obtain sufficient financing.
Our need for additional capital
may adversely affect our financial condition. We have no sustained history of
earnings and have operated at a loss since we commenced business. We have
relied, and continue to rely, on external sources of financing to meet our
capital requirements, to continue developing our technology, acquire additional
oil and gas assets, and to otherwise implement our corporate development and
investment strategies.
We plan to obtain the future
funding that we will need through the debt and equity markets but there can be
no assurance that we will be able to obtain additional funding when it is
required. If we fail to obtain the funding that we need when it is required, we
may have to forego or delay potentially valuable opportunities or default on
existing funding commitments to third parties. Our limited operating history may
make it difficult to obtain future financing.
Our ability to generate positive cash flows is uncertain.
To develop and expand our
business, we will need to make significant up-front investments in our
technology and incur research and development, sales and marketing and general
and administrative expenses. In addition, our growth will require a significant
investment in working capital. We cannot provide any assurance that we will be
able to raise the capital necessary to meet these requirements. If adequate
funds are not available or are not available on satisfactory terms, we may be
required to significantly curtail our operations and may not be able to fund our
current production requirements - let alone fund expansion, take advantage of
unanticipated acquisition opportunities, develop or enhance our technology, or
respond to competitive pressures. Any failure to obtain such additional
financing could have a material adverse effect on our business, results of
operations and financial condition.
Because we may never have net income from our operations,
our business may fail.
We have no history of revenues
and profitability from operations. There can be no assurance that we will ever
operate profitably. Our success is significantly dependent on uncertain events,
including successful development of our technology, establishing satisfactory
manufacturing arrangements and processes, distributing and selling our products
and realizing returns on our oil and gas assets
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Before receiving revenues from
sales to customers of our products or returns from our oil and gas assets, we
anticipate that we will incur increased operating expenses without realizing any
revenues. We therefore expect to incur significant losses. If we are unable to
generate significant revenues from sales of our products, we will not be able to
earn profits or continue operations. We can provide no assurance that we will
generate any revenues or ever achieve profitability. If we are unsuccessful in
addressing these risks, our business will fail and investors may lose all of
their investment in our Company.
We need to raise additional funds and such funds may not be
available on acceptable terms or at all.
We may consider issuing
additional debt or equity securities in the future to fund our business plan,
for potential acquisitions or investments, or for general corporate purposes. If
we issue equity or convertible debt securities to raise additional funds, our
existing stockholders may experience dilution, and the new equity or debt
securities may have rights, preferences and privileges senior to those of our
existing stockholders. If we incur additional debt, it may increase our leverage
relative to our earnings or to our equity capitalization, requiring us to pay
additional interest expenses. We may not be able to obtain financing on
favorable terms, or at all, in which case, we may not be able to develop or
enhance our products, execute our business plan, take advantage of future
opportunities or respond to competitive pressures.
Risks Related to Ownership of our Common Stock
Trading on the OTC Markets may
be volatile and sporadic, which could depress the market price of our common
stock and make it difficult for our stockholders to resell their shares.
Our common stock is quoted on the
OTC, Pink Tier, of the electronic quotation system operated by OTC Markets.
Trading in stock quoted on the OTC Markets is often thin and characterized by
wide fluctuations in trading prices, due to many factors that may have little to
do with our operations or business prospects. This volatility could depress the
market price of our common stock for reasons unrelated to operating performance.
Moreover, the OTC Markets is not a stock exchange, and trading of securities on
the OTC Markets is often more sporadic than the trading of securities listed on
a quotation system like NASDAQ or a stock exchange like NYSE. Accordingly,
shareholders may have difficulty reselling any of the shares.
We have limited capitalization and may require financing,
which may not be available.
We have limited capitalization,
which increases our vulnerability to general adverse economic and industry
conditions, limits our flexibility in planning for or reacting to changes in our
business and industry and may place us at a competitive disadvantage to
competitors with sufficient or excess capitalization. If we are unable to obtain
sufficient financing on satisfactory terms and conditions, we will be forced to
curtail or abandon our plans or operations. Our ability to obtain financing will
depend upon a number of factors, many of which are beyond our control.
Our stock price is volatile.
The market price of our common
stock is highly volatile and could fluctuate widely in price in response to
various factors, many of which are beyond our control, including the following:
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our stock being held by a large number of
persons whose sales could result in positive or negative pricing pressure
on the market price for our common stock;
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actual or anticipated variations in our
quarterly operating results;
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our ability to obtain adequate working capital
financing;
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changes in market valuations of similar
companies;
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publication (or lack of publication) of
research reports about us;
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changes in applicable laws or regulations,
court rulings, enforcement and legal actions;
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loss of any strategic relationships;
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additions or departures of key management
personnel;
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actions by our stockholders (including
transactions in our shares);
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speculation in the press or investment
community;
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changes in our industry;
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competitive pricing pressures;
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our ability to execute our business plan; and
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economic and other external factors.
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In addition, the securities
markets have from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. These market fluctuations may also materially and adversely affect
the market price of our common stock.
Our stock is categorized as a
penny stock. Trading of our stock may be restricted by the SECs penny stock
regulations which may limit a stockholders ability to buy and sell our stock.
Our stock is categorized as a
penny stock, as that term is defined in SEC Rule 3a51-1, which generally
provides that penny stock, is any equity security that has a market price (as
defined) less than US$5.00 per share, subject to certain exceptions. Our
securities are covered by the penny stock rules, including Rule 15g-9, which
impose additional sales practice requirements on broker-dealers who sell to
persons other than established customers and accredited investors. The penny
stock rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document in a form prepared by the SEC which provides information about penny
stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customers account. The bid and offer
quotations, and the broker-dealer and salesperson compensation information, must
be given to the customer orally or in writing prior to effecting the transaction
and must be given to the customer in writing before or with the customers
confirmation. In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from these rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchasers written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for the stock
that is subject to these penny stock rules. Consequently, these penny stock
rules may affect the ability of broker-dealers to trade our securities and
reduces the number of potential investors. We believe that the penny stock rules
discourage investor interest in and limit the marketability of our common stock.
According to SEC Release No.
34-29093, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include: (1) control of the market
for the security by one or a few broker-dealers that are often related to the
promoter or issuer; (2) manipulation of prices through prearranged matching of
purchases and sales and false and misleading press releases; (3) boiler room
practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons; (4) excessive and undisclosed
bid-ask differential and markups by selling broker-dealers; and (5) the
wholesale dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired level, along with the resulting
inevitable collapse of those prices and with consequent investor losses. The
occurrence of these patterns or practices could increase the future volatility
of our share price.
Because the SEC imposes
additional sales practice requirements on brokers who deal in shares of penny
stocks, some brokers may be unwilling to trade our securities. This means that
you may have difficulty reselling your shares, which may cause the value of your
investment to decline.
Our shares are classified as
penny stocks and are covered by Section 15(g) of the Securities Exchange Act of
1934 (the Exchange Act) which imposes additional sales practice requirements
on brokers-dealers who sell our securities in this offering or in the
aftermarket. For sales of our securities, broker-dealers must make a special
suitability determination and receive a written agreement from you prior to
making a sale on your behalf. Because of the imposition of the foregoing
additional sales practices, it is possible that broker-dealers will not want to
make a market in our common stock. This could prevent you from
reselling your shares and may cause the value of your investment to decline.
32
The existence of
indemnification rights to our directors, officers and employees may result in
substantial expenditures by our Company and may discourage lawsuits against our
directors, officers and employees.
Our bylaws contain
indemnification provisions for our directors, officers and employees, and we
have entered into indemnification agreements with our officer and directors. The
foregoing indemnification obligations could result in us incurring substantial
expenditures to cover the cost of settlement or damage awards against directors
and officers, which we may be unable to recoup. These provisions and resultant
costs may also discourage us from bringing a lawsuit against directors and
officers for breaches of their fiduciary duties, and may similarly discourage
the filing of derivative litigation by our stockholders against our directors
and officers even though such actions, if successful, might otherwise benefit us
and our stockholders.
If we fail to develop or
maintain an effective system of internal controls, we may not be able to
accurately report our financial results or prevent financial fraud. As a result,
current and potential stockholders could lose confidence in our financial
reporting.
We are subject to the risk that
sometime in the future, our independent registered public accounting firm could
communicate to the board of directors that we have deficiencies in our internal
control structure that they consider to be significant deficiencies. A
significant deficiency is defined as a deficiency, or a combination of
deficiencies, in internal controls over financial reporting such that there is
more than a remote likelihood that a material misstatement of the entitys
financial statements will not be prevented or detected by the entitys internal
controls.
Effective internal controls are
necessary for us to provide reliable financial reports and effectively prevent
fraud. If we cannot provide reliable financial reports or prevent fraud, we
could be subject to regulatory action or other litigation and our operating
results could be harmed. We are required to document and test our internal
control procedures to satisfy the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act or SOX), which requires
our management to annually assess the effectiveness of our internal control over
financial reporting.
We currently are not an
accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act
of 1934, as amended. Section 404 of the Sarbanes-Oxley Act of 2002 (Section
404) requires us to include an internal control report with our Annual Report
on Form 10-K. That report must include managements assessment of the
effectiveness of our internal control over financial reporting as of the end of
the fiscal year. This report must also include disclosure of any material
weaknesses in internal control over financial reporting that we have identified.
As of June 30, 2017, the management of the Company assessed the effectiveness of
the Companys internal control over financial reporting based on the criteria
for effective internal control over financial reporting established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and SEC guidance on conducting
such assessments. Management concluded, during the fiscal year ended June 30,
2017, that the Companys internal controls and procedures were not effective to
detect the inappropriate application of U.S. GAAP rules. Management realized
there were deficiencies in the design or operation of the Companys internal
control that adversely affected the Companys internal controls which management
considers to be material weaknesses. A material weakness in the effectiveness of
our internal controls over financial reporting could result in an increased
chance of fraud and the loss of customers, reduce our ability to obtain
financing and require additional expenditures to comply with these requirements,
each of which could have a material adverse effect on our business, results of
operations and financial condition. For additional information, see Item 9A
Controls and Procedures.
Our intended business, operations
and accounting are expected to be substantially more complex than they have been
in the past. It may be time consuming, difficult and costly for us to develop
and implement the internal controls and reporting procedures required by the
Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal
controls and other finance personnel in order to develop and implement
appropriate internal controls and reporting procedures. If we are unable to
comply with the internal controls requirements of the Sarbanes-Oxley Act, then we may not be able to obtain the
independent accountant certifications required by such act, which may preclude
us from keeping our filings with the SEC current.
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If we are unable to maintain the
adequacy of our internal controls, as those standards are modified,
supplemented, or amended from time to time, we may not be able to ensure that we
can conclude on an ongoing basis that we have effective internal control over
financial reporting in accordance with Section 404. Failure to achieve and
maintain an effective internal control environment could cause us to face
regulatory action and cause investors to lose confidence in our reported
financial information, either of which could adversely affect the value of our
common stock.
FINRA sales practice requirements
may also limit a stockholders ability to buy and sell our stock.
In addition to the penny stock
rules described above, FINRA has adopted rules that require that in recommending
an investment to a customer, a broker-dealer must have reasonable grounds for
believing that the investment is suitable for that customer. Prior to
recommending speculative low-priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information
about the customers financial status, tax status, investment objectives and
other information. Under interpretations of these rules, FINRA believes that
there is a high probability that speculative low-priced securities will not be
suitable for at least some customers. The FINRA requirements make it more
difficult for broker-dealers to recommend that their customers buy our common
stock, which may limit your ability to buy and sell our stock and have an
adverse effect on the market for our shares.
To date, we have not paid any
cash dividends and no cash dividends will be paid in the foreseeable future.
We do not anticipate paying cash
dividends on our common stock in the foreseeable future and we may not have
sufficient funds legally available to pay dividends. Even if the funds are
legally available for distribution, we may nevertheless decide not to pay any
dividends. We presently intend to retain all earnings for our operations.
As a public company, we will
incur significant increased operating costs and our management will be required
to devote substantial time to new compliance initiatives.
To operate effectively, we will
be required to continue to implement changes in certain aspects of our business
and develop, manage and train management level and other employees to comply
with on-going public company requirements. Failure to take such actions, or
delay in the implementation thereof, could have a material adverse effect on our
business, financial condition and results of operations.
The Sarbanes-Oxley Act, as well
as rules subsequently implemented by the SEC, imposes various requirements on
public companies, including requiring establishment and maintenance of effective
disclosure and financial controls and changes in corporate governance practices.
Our management and other personnel will need to devote a substantial amount of
time to these new compliance initiatives. Moreover, these rules and regulations
will increase our legal and financial compliance costs and will make some
activities more time-consuming and costly.
Our independent registered
public accounting firm has issued its audit opinion on our consolidated
financial statements appearing in our annual report on Form 10-K, including an
explanatory paragraph as to substantial doubt with the respect to our ability to
continue as a going concern.
The report of RBSM LLP, our
independent registered public accounting firm, with respect to our consolidated
financial statements and the related notes for the fiscal year ended June 30,
2017, indicates that there was substantial doubt about our ability to continue
as a going concern. Our financial statements do not include any adjustments that
might result from this uncertainty. For additional information, see Item 7
Managements Discussion and Analysis of Financial Condition and Results of
Operations Going Concern.
34
Other Risks
Trends, Risks and Uncertainties
We have sought to identify what
we believe to be the most significant risks to our business, but we cannot
predict whether, or to what extent, any of such risks may be realized nor can we
guarantee that we have identified all possible risks that might arise. Investors
should carefully consider all of such risk factors before making an investment
decision with respect to our common stock.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
As a smaller reporting company, we are not required to
provide the information required by this Item.
ITEM 2. PROPERTIES
Our principal offices are located
at 4635 South Lakeshore Drive, Suite 200, Tempe, Arizona 85282. On May 25, 2016,
we entered into a sublease agreement with Lakeshore Investment Group II, LLC to
lease the premises of our principal offices for a term of twelve months ending
May 30, 2017 for a monthly rate of $1,199, inclusive of internet and utilities,
and continues on a month-to-month basis thereafter.
Our telephone number in Tempe is (480)
641-4790.
We own no other properties.
Our registered agent is Corporate
Direct, Inc., 2248 Meridian Boulevard, Suite H, Minden, NV 89423.
ITEM 3. LEGAL PROCEEDINGS
Other than as set out below, we
know of no material, existing or pending legal proceedings against us, nor are
we involved as a plaintiff in any material proceeding or pending litigation. We
know of no material proceedings in which any of our directors, officers or
affiliates, or any registered or beneficial stockholder is a party adverse to
our company or our subsidiaries or has a material interest adverse to our
company or our subsidiaries.
Settlement with Union Capital LLC
On January 31, 2017, Union
Capital LLC (Union) filed a complaint against our company in the United States
District Court, Southern District of New York. The complaint was disclosed in
our Quarterly Report on Form 10-Q filed with the SEC on February 22, 2017. The
complaint related to the securities purchase agreement between Union and our
Company dated March 5, 2014. Pursuant to that agreement, we issued to Union a
$50,000 convertible promissory note and a share purchase warrant exercisable to
purchase of 941,619 shares of our common stock at a price of $0.531 per share
($49,999.96 in the aggregate), subject to adjustment.
The complaints alleged, among other facts, that:
On January 5, 2017, Union sent our
company a notice of exercise to exercise 24,642,857 warrants pursuant to a
cashless exercise at an adjusted price of $0.0005;
in
violation of the terms of the warrant, we failed to deliver the shares as set
forth in the notice of exercise; and
we breached
the securities purchase agreement and the warrant by: (i) failing to honor
Unions notice of exercise, (ii) failing to set aside shares sufficient to allow
for exercise of the shares under the terms of the warrant, and (iii) and failing
to notify Union of certain adjustment to the price of the warrant.
Accordingly, Union sought the following relief:
that the court enter an order
requiring our Company to specifically perform the relevant agreements, including
the warrant, and to deliver immediately to Union 24,642,857 shares of our common
stock pursuant to pursuant to the notice of exercise;
that our Company establish and increase our share
reserve, along with the necessary resolutions and acceptance of the legal
opinions furnished by Union, sufficient to enable Union to sell the shares
publicly without restriction;
an award of damages
in an amount to be determined at trial but in any event in excess of $276,000;
and
an award against our Company for costs and
expenses incurred in the prosecution of this lawsuit, including reasonable legal
fees.
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On April 6, 2017, we achieved a
mutual release and settlement with Union regarding the January 31, 2017
complaint. Pursuant to the settlement, on April 6, 2017, we issued to Union
90,000,000 common shares of our capital stock. We completed the share issuance
in reliance on Rule 506 of Regulation D and Section 4(2) of the Securities Act
of 1933. As a result, on April 13, 2017, a notice of voluntary dismissal was
filed with the district court to end the proceedings against our company.
Complaint against Petro Chase, Inc. et al.
On March 22, 2017, our
wholly-owned subsidiary, Black Box Energy, Inc. (BBE), filed a complaint in
the Superior Court of the State of Arizona (Maricopa County) against PetroChase,
Inc., Warren County PC#1, LLC, Stephen R. Moore and Sheree Moore, as well as
certain unidentified, predecessor and success corporations, parent corporations
or subsidiaries of the defendants (collectively the Defendants).
Background
In 2016 the Defendant, Stephen R.
Moore, on behalf of PetroChase, solicited investment from our Company to
subscribe to a 50% (of 70%) working interest in the McKean County Project wells.
On September 9, 2016, BBE entered into a letter agreement with PetroChase to
acquire a 50% (of 70%) working interest in the wells, in addition access to the
wells for the purposes of the developing our mechanical ultrasound technology
for use in water purification. BBE paid $250,000 to PetroChase in consideration
of the rights granted, which funds were to be used for costs associated with
development of the wells. Drilling of the wells was to be commenced within a
reasonable time and was to continue until all the wells were completed. To date,
drilling of the wells has not been completed.
Allegations
The allegations made in our complaint include, but are not
limited to, the following:
The defendants misrepresented the
financial condition of PetroChase, and that the $250,000 would be sufficient to
complete the wells;
The defendants knew at all
relevant times that they would not be able to perform under the letter
agreement, and misrepresented their ability to perform;
The defendants misrepresented and mislead BBE
regarding their rights to drill the wells on the subject property;
On January 24, 2017, BBE sent a dispute notice to
Stephen R. Moore and PetroChase and demanded the return of the $250,000
investment, which funds have not been returned;
On
February 7, 2017 BBE served Stephen R. Moore and PetroChase a demand for
arbitration. The defendants have failed to respond to the demand for
arbitration; and
The defendants, either directly,
or acting in concert with each other, committed breach of contract, constructive
fraud, and patterns of unlawful activity, in soliciting, and absconding with,
the $250,000 investment from BBE.
The complaint seeks a return of
the $250,000 for breach of the letter agreement, treble damages ($750,000 in the
aggregate), plus attorneys fees, costs, and punitive damages. The lawsuit
against PetroChase is pending in the Superior Court of Maricopa County, State of
Arizona, case number CV2017-003236. The Company has obtained default against
PetroChase and Warren County PC #1. The Company expects entry of judgment
against PetroChase and Warren County PC #1 within the coming weeks, but the
timing of said judgment is beyond the control of the Company. The litigation
against Stephen and Sheree Moore continues and is in its early stages.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
37
LITHIUM EXPLORATION GROUP, INC.
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
33,136
|
|
$
|
25,208
|
|
Prepaid expenses
|
|
1,100
|
|
|
2,788
|
|
Current assets held for sale (Note
11)
|
|
19,852
|
|
|
20,011
|
|
Total current assets
|
|
54,088
|
|
|
48,007
|
|
|
|
|
|
|
|
|
Advances to WhiteTop (Note 5)
|
|
783,620
|
|
|
-
|
|
|
|
|
|
|
|
|
Total Assets
|
$
|
837,708
|
|
$
|
48,007
|
|
|
|
|
|
|
|
|
LIABILITIES AND
DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Accounts payable
and accrued liabilities
|
$
|
90,864
|
|
$
|
211,813
|
|
Derivative liability convertible promissory notes (Note 7)
|
|
3,386,251
|
|
|
1,162,058
|
|
Derivative
liability warrants (Note 7)
|
|
338,873
|
|
|
268,611
|
|
Due to related party (Note 6 and 8)
|
|
115,000
|
|
|
115,000
|
|
Convertible
promissory notes - net of unamortized debt discount (Note 7)
|
|
2,841,109
|
|
|
619,769
|
|
Accrued interest convertible promissory notes (Note 7)
|
|
210,202
|
|
|
137,936
|
|
Current liabilities held for sale
(Note 11)
|
|
6,429
|
|
|
6,420
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
6,988,728
|
|
|
2,521,607
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEFICIT
|
|
|
|
|
|
|
Lithium Explorations Group, Inc.
Stockholders Deficit
|
|
|
|
|
|
|
Capital stock (Note 3)
|
|
|
|
|
|
|
Authorized:
|
|
|
|
|
|
|
100,000,000
preferred shares, $0.001 par value
|
|
|
|
|
|
|
10,000,000,000 common
shares, $0.001 par value
|
|
|
|
|
|
|
Issued and outstanding:
|
|
|
|
|
|
|
Nil preferred
shares (June 30, 2016 Nil)
|
|
-
|
|
|
-
|
|
2,649,152,021 common shares (June 30, 2016 119,772,784)
|
|
2,649,152
|
|
|
119,773
|
|
Additional paid-in capital
|
|
49,269,348
|
|
|
48,598,773
|
|
Accumulated other
comprehensive loss
|
|
(33,890
|
)
|
|
(33,731
|
)
|
Accumulated deficit
|
|
(57,683,563
|
)
|
|
(50,806,439
|
)
|
Total Lithium Exploration Group, Inc. Stockholders
Deficit
|
|
(5,798,953
|
)
|
|
(2,121,624
|
)
|
Non-Controlling Interest
|
|
(352,067
|
)
|
|
(351,976
|
)
|
Total Deficit
|
|
(6,151,020
|
)
|
|
(2,473,600
|
)
|
|
|
|
|
|
|
|
Total Liabilities and Deficit
|
$
|
837,708
|
|
$
|
48,007
|
|
The accompanying footnotes are in integral part of these
consolidated financial statements.
F-2
LITHIUM EXPLORATION GROUP, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
Mining expenses
|
|
87,792
|
|
|
31,174
|
|
Selling,
general and administrative
|
|
922,426
|
|
|
517,043
|
|
Total operating expenses
|
|
1,010,218
|
|
|
548,217
|
|
Loss from operations
|
|
(1,010,218
|
)
|
|
(548,217
|
)
|
|
|
|
|
|
|
|
Other income
(expenses)
|
|
|
|
|
|
|
Interest expense (Note 7)
|
|
(2,863,042
|
)
|
|
(781,107
|
)
|
Gain on change in the fair
value of derivative liability (Note 7)
|
|
695,912
|
|
|
595,512
|
|
Amortization of debt discount
|
|
(1,879,437
|
)
|
|
(515,942
|
)
|
Loss on settlement of
warrants
|
|
(42,944
|
)
|
|
-
|
|
Impairment of deposit (Note 5)
|
|
(250,000
|
)
|
|
-
|
|
Bad-debt write off
|
|
-
|
|
|
(20,000
|
)
|
Gain on disposal of business operations
|
|
-
|
|
|
7,761
|
|
Loss on extinguishment of
liability
|
|
(1,527,301
|
)
|
|
-
|
|
|
|
(5,866,812
|
)
|
|
(713,776
|
)
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
(6,877,030
|
)
|
|
(1,261,993
|
)
|
Provision for income taxes
(Note 4)
|
|
-
|
|
|
-
|
|
Net loss from continuing operations
|
|
(6,877,030
|
)
|
|
(1,261,993
|
)
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
(185
|
)
|
|
(78,624
|
)
|
Net loss
|
|
(6,877,215
|
)
|
|
(1,340,617
|
)
|
|
|
|
|
|
|
|
Less: Net loss attributable
to the non-controlling interest
|
|
(91
|
)
|
|
(38,526
|
)
|
|
|
|
|
|
|
|
Net income loss
attributable to Lithium Exploration Group, Inc. common shareholders
|
$
|
(6,877,124
|
)
|
$
|
(1,302,091
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Loss per Common Share
from continuing operations
|
$
|
(0.008
|
)
|
$
|
(0.046
|
)
|
Basic and Diluted Loss per
Common Share from discontinued operations
|
$
|
(0.000
|
)
|
$
|
(0.003
|
)
|
Basic and Diluted Weighted Average Number
of Common Shares Outstanding
|
|
835,752,071
|
|
|
28,018,300
|
|
Comprehensive loss:
|
|
|
|
|
|
|
Net loss
|
$
|
(6,877,215
|
)
|
$
|
(1,340,617
|
)
|
Foreign currency translation
adjustment
|
|
159
|
|
|
(4,248
|
)
|
Comprehensive loss:
|
|
(6,877,056
|
)
|
|
(1,344,865
|
)
|
Comprehensive loss
attributable to non-controlling interest
|
|
(91
|
)
|
|
(38,526
|
)
|
Comprehensive loss attributable to Lithium
Exploration Group, Inc. common shareholders
|
$
|
(6,876,965
|
)
|
$
|
(1,306,339
|
)
|
The accompanying footnotes are in integral part of these
consolidated financial statements.
F-3
LITHIUM EXPLORATION GROUP, INC.
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
controlling
|
|
|
Stockholders
|
|
|
|
Common Shares
|
|
|
Amount $
|
|
|
Capital
|
|
|
Loss
|
|
|
Deficit
|
|
|
Interest
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30,
2015
|
|
7,574,353
|
|
$
|
7,575
|
|
$
|
47,383,231
|
|
$
|
(29,484
|
)
|
$
|
(49,504,348
|
)
|
$
|
(313,450
|
)
|
$
|
(2,456,476
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for debt
conversion and interest
|
|
109,612,491
|
|
|
109,612
|
|
|
367,289
|
|
|
|
|
|
|
|
|
|
|
|
476,901
|
|
Derivative liability transferred to paid in
capital on conversion of note
|
|
-
|
|
|
-
|
|
|
768,175
|
|
|
|
|
|
|
|
|
|
|
|
768,175
|
|
Common shares issued for
cashless exercise of warrants
|
|
2,577,896
|
|
|
2,578
|
|
|
19,898
|
|
|
|
|
|
|
|
|
|
|
|
22,476
|
|
Common shares issued for fractional shares
adjustment
|
|
8,044
|
|
|
8
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Disposal of business
operations
|
|
-
|
|
|
-
|
|
|
60,187
|
|
|
|
|
|
|
|
|
|
|
|
60,187
|
|
Foreign exchange translation
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,247
|
)
|
|
|
|
|
|
|
|
(4,247
|
)
|
Net loss for the year
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
(1,302,091
|
)
|
|
(38,526
|
)
|
|
(1,340,617
|
)
|
Balance June 30, 2016
|
|
119,772,784
|
|
$
|
119,773
|
|
$
|
48,598,773
|
|
$
|
(33,731
|
)
|
$
|
(50,806,439
|
)
|
$
|
(351,976
|
)
|
$
|
(2,473,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for debt conversion and
interest
|
|
2,339,379,237
|
|
|
2,339,379
|
|
|
(1,072,560
|
)
|
|
|
|
|
|
|
|
|
|
|
1,266,819
|
|
Derivative liability
transferred to paid in capital on conversion of note
|
|
|
|
|
|
|
|
1,818,596
|
|
|
|
|
|
|
|
|
|
|
|
1,818,596
|
|
Common shares issued for exercise of warrants
|
|
190,000,000
|
|
|
190,000
|
|
|
(75,461
|
)
|
|
|
|
|
|
|
|
|
|
|
114,539
|
|
Foreign exchange translation
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(159
|
)
|
|
|
|
|
|
|
|
(159
|
)
|
Net loss for the period
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
(6,877,124
|
)
|
|
(91
|
)
|
|
(6,877,215
|
)
|
Balance June 30,
2017
|
|
2,649,152,021
|
|
$
|
2,649,152
|
|
$
|
49,269,348
|
|
$
|
(33,890
|
)
|
$
|
(57,683,563
|
)
|
$
|
(352,067
|
)
|
$
|
(6,151,020
|
)
|
The accompanying footnotes are in integral part of these
consolidated financial statements.
F-4
LITHIUM EXPLORATION GROUP, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Cash Flows from Operating
Activities
|
|
|
|
|
|
|
Net loss from
continuing operations
|
$
|
(6,877,030
|
)
|
$
|
(1,261,993
|
)
|
Loss from discontinued operations
|
|
(185
|
)
|
|
(78,624
|
)
|
Adjustments to
reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
Gain on disposal of business operation
|
|
-
|
|
|
(7,761
|
)
|
Non-cash Interest expense
|
|
2,440,493
|
|
|
695,945
|
|
Common shares issued for interest
|
|
91,769
|
|
|
4,118
|
|
Loss on settlement of debt
|
|
42,944
|
|
|
-
|
|
Bad debt written-off
|
|
-
|
|
|
20,000
|
|
Impairment of deposit
|
|
250,000
|
|
|
-
|
|
Gain on change in the fair value of derivative
liability
|
|
(695,912
|
)
|
|
(595,512
|
)
|
Amortization of debt discount
|
|
1,879,437
|
|
|
515,942
|
|
Loss on extinguishment of debt and derivative
liabilities
|
|
1,527,301
|
|
|
-
|
|
Changes in
operating assets and liabilities:
|
|
|
|
|
|
|
Receivable, net
|
|
-
|
|
|
13,421
|
|
Prepaid expenses
|
|
1,688
|
|
|
-
|
|
Accrued interest
|
|
230,718
|
|
|
83,594
|
|
Accounts
payable and accrued liabilities
|
|
(120,949
|
)
|
|
145,851
|
|
Net cash used in operating
activities from continuing operations
|
|
(1,229,726
|
)
|
|
(465,019
|
)
|
Net
cash provided by operating activities from discontinued operations
|
|
169
|
|
|
62,375
|
|
Net cash used in operating activities
|
|
(1,229,557
|
)
|
|
(402,644
|
)
|
|
|
|
|
|
|
|
Cash Flows from Investing
Activities
|
|
|
|
|
|
|
Investment in
PetroChase, Inc.
|
|
(250,000
|
)
|
|
-
|
|
Advances to WhiteTop
|
|
(783,620
|
)
|
|
-
|
|
Net cash used in investing activities
|
|
(1,033,620
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing
Activities
|
|
|
|
|
|
|
Proceed from
issuance of convertible promissory notes, net
|
|
2,790,946
|
|
|
368,000
|
|
Repayment of notes payable
|
|
(520,000
|
)
|
|
-
|
|
Net cash provided by financing activities
|
|
2,270,946
|
|
|
368,000
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange
|
|
159
|
|
|
(4,246
|
)
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash
equivalents
|
|
7,928
|
|
|
(38,890
|
)
|
Cash and cash equivalents - beginning of period
|
|
25,208
|
|
|
64,098
|
|
Cash and cash equivalents - end of period
|
$
|
33,136
|
|
$
|
25,208
|
|
|
|
|
|
|
|
|
Supplementary disclosure of cash flow
information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
Interest
|
$
|
-
|
|
$
|
-
|
|
Income taxes
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
Supplementary non- cash Investing and
Financing Activities:
|
|
|
|
|
|
|
Non-cash investing and
financing activities:
|
|
|
|
|
|
|
Common stock
issued for debt conversion
|
$
|
1,175,055
|
|
$
|
476,901
|
|
Common stock issued on cashless exercise of warrants
|
$
|
71,595
|
|
$
|
22,476
|
|
Derivative
liability re-classed to additional paid in capital
|
$
|
1,818,596
|
|
$
|
768,175
|
|
Debt discount on issuance of convertible note and warrants
|
$
|
2,849,867
|
|
$
|
394,068
|
|
Initial derivative
liability on note issuance
|
$
|
5,290,360
|
|
$
|
1,027,009
|
|
Interest reclassed to convertible note
|
$
|
158,778
|
|
$
|
5,680
|
|
Reclassification
of discontinued assets and liabilities to additional paid in capital
|
$
|
-
|
|
$
|
60,187
|
|
The accompanying footnotes are in integral part of these
consolidated financial statements.
F-5
LITHIUM EXPLORATION GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30,
2017
NOTE 1 - ORGANIZATION
Lithium Exploration Group, Inc.
(the Company) is a U.S.-based exploration and development company that had
been focused on the acquisition and development potential of lithium brines and
other precious metals that demonstrate high probability for near-term
production. Currently the company is focused testing its SonCav Technology for
use in the oil and gas industry and the acquisition of oil and gas related
assets in Western Canada and Southwest Louisiana. The Company was incorporated
on May 31, 2006 in the State of Nevada under the name Mariposa Resources, Ltd.
Effective November 30, 2010, it changed its name to Lithium Exploration Group,
Inc., by way of a merger with its wholly-owned subsidiary Lithium Exploration
Group, Inc., which was formed solely for the change of name.
As used in this Annual Report on
Form 10-K and the accompanying financial statements and notes, and unless
otherwise indicated, the terms we, us, our or the Company refer to
Lithium Exploration Group, Inc. a Nevada corporation, including our wholly-owned
subsidiaries, Alta Disposal Ltd., an Alberta, Canada corporation (Alta
Disposal), Black Box Energy, Inc., a Nevada corporation (Black Box Energy),
and our 51% owned subsidiary, Alta Disposal Morinville Ltd., (formerly Bluetap
Resources, Ltd.) an Alberta, Canada corporation (ADM), unless otherwise
indicated.
On October 17, 2014, the Company
amended its Articles of Incorporation, which amendment was filed with the Nevada
Secretary of State on October 17, 2014, to increase the authorized capital of
common shares from 500,000,000 common shares, par value $0.001, to 2,000,000,000
common shares, par value $0.001. The then authorized capital consists of
2,000,000,000 common shares and 100,000,000 preferred shares, all with a par
value of $0.001.
On January 19, 2015, the Company
received written consent from its Board of Directors to implement a reverse
stock split of its issued and outstanding shares of common stock on a basis of
20 old shares of common stock for 1 new share of common stock. Stockholders of
the Company originally approved the reverse stock split on October 14, 2014 at a
special meeting. The reverse stock split was reviewed and approved for filing by
FINRA and made effective on February 25, 2015.
On July 13, 2015, the Board of
Directors approved an increase in authorized capital from 2,000,000,000 shares
of common stock, par value $0.001, to 10,000,000,000 shares of common stock, par
value of $0.001 per share, and a reverse stock split on a basis of up to 200 old
shares of common stock for 1 share of common stock. The increase of authorized
capital and stock split was approved by shareholders on July 13, 2015.
In this Annual Report on Form
10-K and in the accompanying audited financial statements and notes, the above
described reverse splits are reflected retroactively in the descriptions of
shares and warrants and their corresponding issuance and exercise prices, except
where otherwise indicated.
The Companys executive offices
are located at 4635 South Lakeshore Drive, Suite 200, Tempe, AZ 85282-7127. The
telephone number for our Tempe office is (480) 641-4790.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and consolidation
The accompanying consolidated
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America.
F-6
Principal of Consolidation
The consolidated financial
statements include the accounts of the Company, its wholly-owned subsidiary Alta
Disposal and its 51% owned subsidiary ADM. Intercompany accounts and
transactions have been eliminated in consolidation in conformity with the
applicable accounting framework. No transactions occurred within Black Box
Energy for the year ended June 30, 2017.
Use of Estimates
The preparation of consolidated
financial statements in conformity with United States generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The Companys periodic filings with
the Securities and Exchange Commission include, where applicable, disclosures of
estimates, assumptions, uncertainties and markets that could affect the
financial statements and future operations of the Company. Significant estimates
that may materially change in the near term include the valuation of derivative
liabilities and the underlying warrants, as well as fair value of investments.
Cash and Cash Equivalents
Cash and cash equivalents include
cash in banks, money market funds, and certificates of term deposits with
original maturities of less than three months, which are readily convertible to
known amounts of cash and which, in the opinion of management, are subject to an
insignificant risk of loss in value. The Company had $33,136 and $25,208 in cash
and cash equivalents at June 30, 2017 and 2016, respectively.
Concentration of Risk
The Company maintains cash
balances at a financial institution which, from time to time, may exceed Federal
Deposit Insurance Corporation insured limits for banks located in the US. As of
June 30, 2017 and 2016, the Company had no deposits in excess of federally
insured limits in its US bank. The Company has not experienced any losses with
regard to its bank accounts and believes it is not exposed to any risk of loss
on its cash in bank accounts.
Prepaid Expenses
Prepaid expenses consist of
security deposit for office lease which will be expensed or refunded at the end
of the lease period.
Start-Up Costs
In accordance with FASC 720-15-20
Start-Up Costs, the Company expenses all costs incurred in connection with the
start-up and organization of the Company.
Mineral Acquisition and Exploration Costs
The Company has been in the
exploration stage since its formation on May 31, 2006. Mineral property
acquisition and exploration costs are expensed as incurred. When it has been
determined that a mineral property can be economically developed as a result of
establishing proven and probable reserves, the costs incurred to develop such
property are capitalized. Such costs will be amortized using the
units-of-production method over the estimated life of the probable reserves.
Concentrations of Credit Risk
The Companys financial
instruments that are exposed to concentrations of credit risk primarily consist
of its cash and cash equivalents and related party payables it will likely incur
in the near future. The Company places its cash and cash equivalents with
financial institutions of high credit worthiness. At times, its cash and cash
equivalents with a particular financial institution may exceed any applicable
government insurance limits. The Companys management plans to assess the financial strength and
credit worthiness of any parties to which it extends funds, and as such, it
believes that any associated credit risk exposures are limited.
F-7
Non-controlling Interest
The 49% third party ownership of
Alta Disposal Morinville Ltd. (formerly Blue Tap Resources Ltd.) at June 30,
2017 and 2016 are recorded as non-controlling interests in the consolidated
financial statements. Details of changes in the non-controlling interests during
the years ended June 30, 2017 and 2016 and are reflected in the consolidated
statement of deficit.
Related Parties
Parties are considered to be
related to the Company if the parties, directly or indirectly, through one or
more intermediaries, control, are controlled by, or are under common control
with the Company. Related parties also include principal owners of the Company,
its management, members of the immediate families of principal owners of the
Company and its management and other parties with which the Company may deal if
one party controls or can significantly influence the management or operating
policies of the other to an extent that one of the transacting parties might be
prevented from fully pursuing its own separate interests. The Company discloses
all related party transactions. All transactions shall be recorded at fair value
of the goods or services exchanged. Property purchased from a related party is
recorded at the cost to the related party and any payment to or on behalf of the
related party in excess of the cost is reflected as a distribution to related
party.
Net Income or (Loss) per Share of Common Stock
The Company has adopted FASC
Topic No. 260, Earnings Per Share, (EPS) which requires presentation of
basic and diluted EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. In the accompanying financial statements, basic
earnings (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding during the period.
Potentially dilutive securities
are not presented in the computation of EPS since their effects are
anti-dilutive. The total number of potential number of dilutive shares is
6,951,714,706 at the year ending June 30, 2017.
Foreign Currency Translations
The Companys functional and
reporting currency is the U.S. dollar. All transactions initiated in other
currencies are translated into U.S. dollars using the exchange rate prevailing
on the date of transaction. Monetary assets and liabilities denominated in
foreign currencies are translated into the US dollar at the rate of exchange in
effect at the balance sheet date. Unrealized exchange gains and losses arising
from such transactions are deferred until realization and are included as a
separate component of stockholders equity (deficit) as a component of
comprehensive income or loss. Upon realization, the amount deferred is
recognized in income in the period when it is realized.
Translation of Foreign Operations
The financial results and
position of foreign operations whose functional currency is different from the
Companys presentation currency are translated as follows:
|
|
assets and liabilities are translated at
period-end exchange rates prevailing at that reporting date;
|
|
|
equity is translated at historical exchange
rates; and
|
|
|
income and expenses are translated at average
exchange rates for the period.
|
Exchange differences arising on
translation of foreign operations are transferred directly to the Companys
accumulated other comprehensive loss in the consolidated financial statements.
Transaction gains and losses arising from exchange rate fluctuation on transactions denominated in a
currency other than the functional currency are included in the consolidated
statements of operations.
F-8
The relevant translation rates are as
follows:
|
|
Year Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Closing rate CDN$ to US$ as of June 30,
|
$
|
0.770
|
|
$
|
0.769
|
|
Average rate CDN$ to US $ for the period June 30,
|
|
0.754
|
|
|
0.776
|
|
Comprehensive Income (Loss)
FASC Topic No. 220,
Comprehensive Income, establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. As of June 30, 2017 and 2016, the Company had no material
items of other comprehensive income except for the foreign currency translation
adjustment.
Risks and Uncertainties
Our company operates in the
resource exploration industry that is subject to significant risks and
uncertainties, including financial, operational, technological, and other risks
associated with operating a resource exploration business, including the
potential risk of business failure.
Environmental Expenditures
The operations of our company
have been, and may in the future be, affected from time to time in varying
degree by changes in environmental regulations, including those for future
reclamation and site restoration costs. Both the likelihood of new regulations
and their overall effect upon our company vary greatly and are not predictable.
Our company's policy is to meet or, if possible, surpass standards set by
relevant legislation by application of technically proven and economically
feasible measures.
Environmental expenditures that
relate to ongoing environmental and reclamation programs are charged against
earnings as incurred or capitalized and amortized depending on their future
economic benefits. All of these types of expenditures incurred since inception
have been charged against earnings due to the uncertainty of their future
recoverability. Estimated future reclamation and site restoration costs, when
the ultimate liability is reasonably determinable, are charged against earnings
over the estimated remaining life of the related business operation, net of
expected recoveries.
Warrants
The Company accounts for
currently outstanding detachable warrants to purchase common stock as derivative
liabilities as they are freestanding derivative financial instruments. The
warrants are recorded as derivative liabilities at fair value, estimated using a
Black-Scholes option pricing model, and marked to market at each balance sheet
date, with changes in the fair value of the derivative liabilities recorded in
the consolidated statements of operations and comprehensive loss. Upon exercise
of a derivative financial instrument, the instrument is marked to fair value at
the conversion date and is reclassified to equity.
Convertible Instruments
The Company evaluates and
accounts for conversion options embedded in its convertible instruments in
accordance with ASC 815 Derivatives and Hedging. It provides three criteria
that, if met, require companies to bifurcate conversion options from their host
instruments and account for them as free standing derivative financial
instruments. These three criteria include circumstances in which (a) the
economic characteristics and risks of the embedded derivative instrument are not
clearly and closely related to the economic characteristics and risks of the
host contract, (b) the hybrid instrument that embodies both the embedded
derivative instrument and the host contract is not re-measured at fair value
under otherwise applicable generally accepted accounting principles with changes
in fair value reported in earnings as they occur and (c) a
separate instrument with the same terms as the embedded derivative instrument
would be considered a derivative instrument. The result of this accounting
treatment could be that the fair value of a financial instrument is classified
as a derivative financial instrument and is marked-to-market at each balance
sheet date and recorded as a liability. In the event that the fair value is
recorded as a liability, the change in fair value is recorded in the statement
of operations as other income or other expense. Upon conversion or exercise of a
derivative financial instrument, the instrument is marked to fair value at the
conversion date and is reclassified to equity. The Company records, when
necessary, discounts to convertible notes for the intrinsic value of conversion
options embedded in debt instruments based upon the differences between the fair
value of the underlying common stock at the commitment date of the note
transaction and the effective conversion price embedded in the note. Debt
discounts under these arrangements are amortized over the term of the related
debt to their earliest date of notes redemption.
F-9
Fair Value of Financial Instruments
ASC 820, Fair Value Measurements
and Disclosures requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. ASC 820
establishes a fair value hierarchy based on the level of independent, objective
evidence surrounding the inputs used to measure fair value. A financial
instruments categorization within the fair value hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. ASC 820
prioritizes the inputs into three levels that may be used to measure fair value:
|
Level 1 - Quoted prices in active markets for
identical assets or liabilities;
|
|
Level 2 - Inputs other than quoted prices
included within Level 1 that are either directly or indirectly observable;
and
|
|
Level 3 - Unobservable inputs that are
supported by little or no market activity, therefore requiring an entity
to develop its own assumptions about the assumptions that market
participants would use in pricing.
|
The carrying amounts of our
companys financial assets and liabilities, such as cash and cash equivalents,
prepaid expenses, deposit, accounts payable and accrued liabilities, and due to
a related party approximate their fair values because of the short maturity of
these instruments.
Our Level 3 financial liabilities
consist of the derivative liability of our companys secured convertible
promissory notes and debentures issued to investors, and the derivative warrants
issued in connection with these convertible promissory notes and debentures.
There is no current market for these securities such that the determination of
fair value requires significant judgment or estimation. Our company used a
lattice model which incorporates transaction details such as company stock
price, contractual terms, maturity, risk free rates, as well as assumptions
about future financings, volatility, and holder behavior as of the date of
issuance and each balance sheet date.
Revenue Recognition
The Company has generated little
revenues to date. It is the Companys policy that revenue from product sales or
services will be recognized in accordance with ASC 605 Revenue Recognition.
Four basic criteria must be met before revenue can be recognized: (1) persuasive
evidence of an arrangement exists; (2) delivery has occurred; (3) the selling
price is fixed and determinable; and (4) collectability is reasonably assured.
Determination of criteria (3) and (4) are based on management's judgments
regarding the fixed nature of the selling prices of the products delivered and
the collectability of those amounts. Provisions for discounts and rebates to
customers, estimated returns and allowances, and other adjustments are provided
for in the same period the related sales are recorded. The Company will defer
any revenue for which the product/services was not delivered or is subject to
refund until such time that the Company and the customer jointly determine that
the product/service has been delivered or no refund will be required.
Sales comprise the fair value of
the consideration received or receivable for the sale of goods and rendering of
services in the ordinary course of the Companys activities. Sales are
presented, net of tax, rebates and discounts, and after eliminating intercompany
sales. The Company recognizes revenue when the amount of revenue and related cost can be reliably measured and it is probable that
the collectability of the related receivables is reasonably assured.
F-10
During the year ended June 30,
2017 and 2016, the Company didnt record any revenue under continuing operation.
Income Taxes
The Company accounts for income
taxes pursuant to the provisions of ASC 740-10, Income Taxes which requires,
among other things, an asset and liability approach to calculating deferred
income taxes. The asset and liability approach requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of assets
and liabilities. A valuation allowance is provided to offset any net deferred
tax assets for which management believes it is more likely than not that the net
deferred asset will not be realized.
The Company also follows the
provisions of ASC 740-10 related to accounting for uncertain income tax
positions. When tax returns are filed, some positions taken may be sustained
upon examination by the taxing authorities, while others may be subject to
uncertainty about the merits of the position taken or the amount of the position
that would be ultimately sustained. In accordance with the guidance of ASC
740-10, the benefit of a tax position is recognized in the financial statements
in the period during which, based on all available evidence, management believes
it is more likely than not that the position will be sustained upon examination,
including the resolution of appeals or litigation processes, if any. Tax
positions taken are not offset or aggregated with other positions. As of June
30, 2017 and 2016, the Company has had no uncertain tax positions. The Company
recognizes interest and penalties, if any, related to uncertain tax positions as
general and administrative expenses. The Company currently has no federal or
state tax examinations nor has it had any federal or state examinations since
its inception.
Receivables
Trade and other receivables are
customer obligations due under normal trade terms and are recorded at face value
less any provisions for uncollectible amounts considered necessary. The Company
includes any balances that are determined to be uncollectible in its overall
allowance for doubtful accounts. The Company recorded $Nil (June 30, 2016 -
$Nil) in allowance for doubtful accounts.
Recent Accounting Pronouncements
On May 10, 2017, the Financial
Accounting Standards Board (FASB) issued an Accounting Standards Update
(ASU) 2017-09 CompensationStock Compensation (Topic 718): Scope of
Modification Accounting, which provides guidance to clarify when to account for
a change to the terms or conditions of a share-based payment award as a
modification. Under the new guidance, modification accounting is required only
if the fair value, the vesting conditions, or the classification of the award
(as equity or liability) changes as a result of the change in terms or
conditions. The guidance is effective prospectively for all companies for annual
periods beginning on or after December 15, 2017. Early adoption is permitted.
The Company is currently evaluating the impact of adopting this guidance.
In March 2017, the Financial
Accounting Standards Board (FASB) issued ASU 2017-08,
ReceivablesNonrefundable Fees and Other Costs. The Board is issuing this
update to amend the amortization period for certain purchased callable debt
securities held at a premium, the Board is shortening the amortization period
for the premium to the earliest call date. For public business entities, the
amendments in this update are effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2018. For all other
entities, the amendments are effective for fiscal years beginning after December
15, 2019, and interim periods within fiscal years beginning after December 15,
2020. The Company is currently evaluating the impact of adopting this guidance.
In January 2017, the FASB issued
Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill
Impairment ("ASU 2017-04"). ASU 2017-04 simplifies the accounting for goodwill
impairment by removing Step 2 of the goodwill impairment test, which requires a
hypothetical purchase price allocation. ASU 2017-04 is effective for annual or interim goodwill impairment
tests in fiscal years beginning after December 15, 2019, and should be applied
on a prospective basis. Early adoption is permitted for interim or annual
goodwill impairment tests performed on testing dates after January 1, 2017. The
Company does not anticipate the adoption of ASU 2017-04 will have a material
impact on its consolidated financial statements.
F-11
In January 2017, the FASB issued
Accounting Standards Update No. 2017-01, Clarifying the Definition of a Business
("ASU 2017-01"). The standard clarifies the definition of a business by adding
guidance to assist entities in evaluating whether transactions should be
accounted for as acquisitions of assets or businesses. ASU 2017-01 is effective
for fiscal years beginning after December 15, 2017, and interim periods within
those fiscal years. Under ASU 2017-01, to be considered a business, the assets
in the transaction need to include an input and a substantive process that
together significantly contribute to the ability to create outputs. Prior to the
adoption of the new guidance, an acquisition or disposition would be considered
a business if there were inputs, as well as processes that when applied to those
inputs had the ability to create outputs. Early adoption is permitted for
certain transactions. The Company does not anticipate the adoption of ASU
2017-01 will have a material impact on its consolidated financial statements.
In November 2016, the FASB issued
Accounting Standards Update No. 2016-18, Restricted Cash (a consensus of the
FASB Emerging Issue Task Force) ("ASU 2016-18"). This new standard addresses the
diversity that exists in the classification and presentation of changes in
restricted cash on the statement of cash flows. The amendments in ASU 2016-18
require that a statement of cash flows explain the change during the period in
the total of cash, cash equivalents, and amounts generally described as
restricted cash or restricted cash equivalents. Therefore, amounts generally
described as restricted cash and restricted cash equivalents should be included
with cash and cash equivalents when reconciling the beginning-of-period and
end-of-period total amounts shown on the statement of cash flows. This guidance
is effective for fiscal years beginning after December 15, 2017, including
interim periods within the year of adoption, with early adoption permitted. The
Company does not expect that the adoption of ASU 2016-18 will have a material
impact on its consolidated financial statements.
In August, 2016, the FASB issued
Accounting Standards Update No. 2016-15, Classification of Certain Cash Receipts
and Cash Payments (a consensus of the Emerging Issues Task Force) ("ASU
2016-15"). The amendments in ASU 2016-15 address eight specific cash flow issues
and apply to all entities that are required to present a statement of cash flows
under ASC Topic 230, Statement of Cash Flows. The amendments in ASU 2016-15 are
effective for public business entities for fiscal years beginning after December
15, 2017, and interim periods within those fiscal years. Early adoption is
permitted, including adoption during an interim period. The Company has not yet
completed the analysis of how adopting this guidance will affect its
consolidated financial statements.
In October 2016, the Financial
Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
2016-16 - Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory.
ASU 2016-16 will require the tax effects of intercompany transactions, other
than sales of inventory, to be recognized currently, eliminating an exception
under current GAAP in which the tax effects of intra-entity asset transfers are
deferred until the transferred asset is sold to a third party or otherwise
recovered through use. The guidance will be effective for the first interim
period of our 2019 fiscal year, with early adoption permitted. The Company does
not anticipate the adoption of ASU 2016-16 will have a material impact on its
consolidated financial statements.
In connection with its financial
instruments project, the FASB issued ASU 2016-13 - Financial Instruments -
Credit Losses: Measurement of Credit Losses on Financial Instruments in June
2016 and ASU 2016-01 - Financial Instruments - Overall: Recognition and
Measurement of Financial Assets and Financial Liabilities in January 2016. ASU
2016-13 introduces a new impairment model for most financial assets and certain
other instruments. For trade and other receivables, held-to-maturity debt
securities, loans and other instruments, entities will be required to use a
forward-looking expected loss model that will replace the current incurred
loss model and generally will result in earlier recognition of allowances for
losses. The guidance will be effective for the first interim period of our 2021
fiscal year, with early adoption in fiscal year 2020 permitted.
ASU 2016-01 addresses certain
aspects of recognition, measurement, presentation, and disclosure of financial
instruments. Among other provisions, the new guidance requires the fair value
measurement of investments in certain equity securities. For investments without
readily determinable fair values, entities have the option to either measure
these investments at fair value or at cost adjusted for changes in observable
prices minus impairment. All changes in measurement will be recognized in
net income. The guidance will be effective for the first interim period of our
2019 fiscal year. Early adoption is not permitted, except for certain provisions
relating to financial liabilities.
F-12
In January 2016, the FASB issued
an accounting standard update which requires, among other things, that entities
measure equity investments (except those accounted for under the equity method
of accounting or those that result in consolidation of the investee) at fair
value, with changes in fair value recognized in earnings. Under the standard,
entities will no longer be able to recognize unrealized holding gains and losses
on equity securities classified today as available for sale as a component of
other comprehensive income. For equity investments without readily determinable
fair values the cost method of accounting is also eliminated, however subject to
certain exceptions, entities will be able to elect to record equity investments
without readily determinable fair values at cost, less impairment and plus or
minus adjustments for observable price changes, with all such changes recognized
in earnings. This new standard does not change the guidance for classifying and
measuring investments in debt securities and loans. The standard is effective
for us on July 1, 2018 (the first quarter of our 2019 fiscal year). The Company
is currently evaluating the anticipated impact of this standard on its
consolidated financial statements.
In February 2016, the FASB issued
ASU No. 2016-02, Leases (Topic 842) to increase transparency and comparability
among organizations by recognizing lease assets and lease liabilities on the
balance sheet and disclosing key information about leasing arrangements. Topic
842 affects any entity that enters into a lease, with some specified scope
exemptions. The guidance in this Update supersedes Topic 840, Leases. The core
principle of Topic 842 is that a lessee should recognize the assets and
liabilities that arise from leases. A lessee should recognize in the statement
of financial position a liability to make lease payments (the lease liability)
and a right-of-use asset representing its right to use the underlying asset for
the lease term. For public companies, the amendments in this Update are
effective for fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years. The Company is currently evaluating the
impact of adopting ASU No. 2016-02 on its consolidated financial statements.
In March 2016, the FASB issued
ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus
Agent Considerations (Reporting Revenue Gross versus Net) that clarifies how to
apply revenue recognition guidance related to whether an entity is a principal
or an agent. ASU 2016-08 clarifies that the analysis must focus on whether the
entity has control of the goods or services before they are transferred to the
customer and provides additional guidance about how to apply the control
principle when services are provided and when goods or services are combined
with other goods or services. The effective date for ASU 2016-08 is the same as
the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual
reporting periods beginning after December 15, 2017, including interim periods
within those years. The Company has not yet determined the impact of ASU 2016-08
on its consolidated financial statements.
In March 2016, the FASB issued
ASU No. 2016-09, Compensation Stock Compensation, or ASU No. 2016-09. The
areas for simplification in this Update involve several aspects of the
accounting for share-based payment transactions, including the income tax
consequences, classification of awards as either equity or liabilities, and
classification on the statement of cash flows. For public entities, the
amendments in this Update are effective for annual periods beginning after
December 15, 2016, and interim periods within those annual periods. Early
adoption is permitted in any interim or annual period. If an entity early adopts
the amendments in an interim period, any adjustments should be reflected as of
the beginning of the fiscal year that includes that interim period. An entity
that elects early adoption must adopt all of the amendments in the same period.
Amendments related to the timing of when excess tax benefits are recognized,
minimum statutory withholding requirements, forfeitures, and intrinsic value
should be applied using a modified retrospective transition method by means of a
cumulative-effect adjustment to equity as of the beginning of the period in
which the guidance is adopted. Amendments related to the presentation of
employee taxes paid on the statement of cash flows when an employer withholds
shares to meet the minimum statutory withholding requirement should be applied
retrospectively. Amendments requiring recognition of excess tax benefits and tax
deficiencies in the income statement and the practical expedient for estimating
expected term should be applied prospectively. An entity may elect to apply the
amendments related to the presentation of excess tax benefits on the statement
of cash flows using either a prospective transition method or a retrospective
transition method. The Company is currently evaluating the impact of adopting
ASU No. 2016-09 on its consolidated financial statements.
F-13
In April 2016, the FASB issued
ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying
Performance Obligations and Licensing, which provides further guidance on
identifying performance obligations and improves the operability and
understandability of licensing implementation guidance. The effective date for
ASU 2016-10 is the same as the effective date of ASU 2014-09 as amended by ASU
2015-14, for annual reporting periods beginning after December 15, 2017,
including interim periods within those years. The Company has not yet determined
the impact of ASU 2016-10 on its consolidated financial statements.
FASB ASU 2016-12, Revenue from Contracts with Customers (Topic
606): Narrow-Scope Improvements and Practical Expedients was issued in June
2016 and clarifies the objective of the collectability criterion, presentation
of taxes collected from customers, non-cash consideration, contract
modifications at transition, completed contracts at transition and how guidance
in Topic 606 is retrospectively applied. The amendments do not change the core
principle of the guidance in Topic 606. The effective dates are the same as
those for Topic 606.
NOTE 3 CAPITAL STOCK
Reverse Stock Splits
On January 19, 2015, the
Company's board of directors consented to effect a reverse stock split of the
Companys issued and outstanding shares of common stock on a basis of 20 old
shares of common stock for one 1 new share of common stock. The reverse stock
split was reviewed and approved for filing by the FNRA effective February 25,
2015.
On July 13, 2015, the Company's
board of directors consented to effect a reverse stock split of the Companys
issued and outstanding shares of common stock on a basis of 200 old shares of
common stock for one 1 new share of common stock. The reverse stock split was
reviewed and approved for filing by the FNRA effective September 30, 2015. The
Companys authorized capital will not be affected by the reverse stock split.
The split is reflected retrospectively in the accompanying financial statements.
Authorized Stock
At inception, the Company
authorized 100,000,000 common shares and 100,000,000 preferred shares, both with
a par value of $0.001 per share. Each common share entitles the holder to one
vote, in person or proxy, on any matter on which action of the stockholders of
the corporation is sought.
On April 8, 2009, the Company
increased the number of authorized shares to 600,000,000 shares, of which
500,000,000 shares are designated as common stock par value $0.001 per share,
and 100,000,000 shares are designated as preferred stock, par value $0.001 per
share.
On October 25, 2012, the Company
designated 20,000,000 series A convertible preferred stock with a par value of
$0.001 per share and stated value of $100 per share. The designated preferred
stock is convertible at the option of the holder, at any time beginning one year
from the date such shares are issued, into common stock of the Company with a
par value of $0.001. All shares of common stock of the Company, shall be of
junior rank to all series A preferred stock in respect to the preferences as to
distributions and payments upon the liquidation, dissolution and winding up of
the Company. All other shares of preferred stock shall be of junior rank to all
series A preferred shares in respect to the preferences as to distributions and
payments upon the liquidation, dissolution and winding up of the Company.
On January 3, 2014, the Company
designated 2,000,000 series B convertible preferred stock with a par value
$0.001 per share, issuable only in consideration of the extinguishment of
existing debt convertible in to the Companys common stock with a par value of
$0.001. The designated preferred stock shall be issued on the basis of 1
preferred stock for each $1 of convertible debt. The series B convertible
preferred stock shall be subordinate to and rank junior to all indebtedness of
the Company now or hereafter outstanding.
On October 17, 2014, the Company
amended its Articles of Incorporation, which amendment was filed with the Nevada
Secretary of State on October 17, 2014, to increase the authorized capital of
its common shares from 500,000,000 common shares, par value $0.001 to
2,000,000,000 common shares, par value $0.001.
F-14
The Company's authorized capital
consists of 2,000,000,000 common shares and 100,000,000 preferred shares, all
with a par value of $0.001.
Effective June 22, 2015, the
Company designated 50,000,000 of its 100,000,000 authorized shares of preferred
stock as series A preferred stock. The series A preferred stock, par value
$0.001, will rank senior to the Companys common stock, carrying general voting
rights with the common stock at the rate of 62 votes per share. The series A
preferred stock will be deemed cancelled within 1 year of issuance and are not
entitled to share in dividends or other distributions. So long as any shares of
series A preferred stock are outstanding, the affirmative vote of not less than
75% of those outstanding shares of series A preferred stock will be required for
any change to the Companys Articles of Incorporation.
Effective September 9, 2015, the
Company increase the authorized capital of its common shares from 2,000,000,000
common shares, par value $0.001 to 10,000,000,000 common shares, par value
$0.001.
Share Issuances
Common Stock Issuance
For the year ended June 30, 2016:
During the year ended June 30,
2016, the Company issued 109,612,491 shares upon conversion of the convertible
promissory notes and accrued interest, valued at $476,901.
The Company also issued 2,577,896
shares, valued at $22,476 on cashless exercise of warrants during the year ended
June 30, 2016.
For the year ended June 30, 2017:
During the year ended June 30,
2017, the Company issued 2,339,379,237 common shares at a deemed price ranging
from $0.0003 to $0.00075 per share for promissory note and interest conversion
valued at $1,266,819.
On April 4, 2017, the Company
issued 90,000,000 common shares for warrant settlement agreement $42,944
recorded as loss on settlement with derivative liability on date of settlement
recorded as change in fair value of derivative liability (discussed in Note 12).
On May 12, 2017, the Company
issued 100,000,000 common shares to settle warrants under a warrant termination
agreement, resulting in a cashless exercise of the warrants. No other
consideration was paid as part of the settlement.
NOTE 4 PROVISION FOR INCOME TAXES
The Company recognizes the tax
effects of transactions in the year in which such transactions enter into the
determination of net income, regardless of when reported for tax purposes.
Deferred taxes are provided in the financial statements under FASC 740-20-20 to
give effect to the resulting temporary differences which may arise from
differences in the bases of fixed assets, depreciation methods, allowances, and
start-up costs based on the income taxes expected to be payable in future years.
Exploration stage deferred tax assets arising as a result of net operating loss carryforwards have been offset completely by a valuation allowance due to the uncertainty of their utilization in future periods based upon management’s evaluation that such losses will more likely than not be utilized in future periods. Operating loss carryforwards generated during the period from May 31, 2006 (date of inception) through June 30, 2017 of approximately $15 million will begin to expire in 2026. Accordingly, deferred tax assets were offset by the valuation allowance that increased by $795,992 and $795,006 during the years ended June 30, 2017 and 2016 respectively.
F-15
The Company follows the
provisions of uncertain tax positions as addressed in FASC 740-10-65-1. The
Company recognized approximately no increase in the liability for unrecognized
tax benefits.
The Company has no tax position
at June 30, 2017 for which the ultimate deductibility is highly certain but for
which there is uncertainty about the timing of such deductibility. The Company
recognizes interest accrued related to unrecognized tax benefits in interest
expense and penalties in operating expenses. No such interest or penalties were
recognized during the periods presented. The Company had no accruals for
interest and penalties at June 30, 2017. The Companys utilization of any net
operating loss carry forward may be unlikely as a result of its intended
exploration stage activities. The tax years for June 30, 2016, June 30, 2015,
June 30, 2014, and June 30, 2013 are still open for examination by the Internal
Revenue Service (IRS).
|
|
For the
Year Ended June 30, 2017
|
|
|
|
Amount
|
|
|
Tax Effect
(35%)
|
|
Loss before income tax
|
$
|
6,877,030
|
|
$
|
2,406,961
|
|
Shares issued for interest expenses
|
|
(91,769
|
)
|
|
(32,119
|
)
|
Non-cash interest expense
|
|
(2,440,493
|
)
|
|
(854,173
|
)
|
Loss on change in fair value of derivative
liability and extinguishment of debt
|
|
(831,389
|
)
|
|
(290,986
|
)
|
Amortization of debt discount
|
|
(1,879,437
|
)
|
|
(657,803
|
)
|
Loss on settlement of debt
|
|
(42,944
|
)
|
|
(15,030
|
)
|
Total
|
|
1,590,998
|
|
|
556,849
|
|
Valuation allowance
|
|
(1,590,998
|
)
|
|
(556,849
|
)
|
Net deferred tax asset
(liability)
|
$
|
-
|
|
$
|
-
|
|
|
|
For the
Year Ended June 30,
|
|
|
|
2016
|
|
|
|
Amount
|
|
|
Tax Effect (35%)
|
|
Loss before income tax
|
$
|
1,340,617
|
|
$
|
469,216
|
|
Non-cash interest expense
|
|
(632,942
|
)
|
|
(221,530
|
)
|
Gain on change in fair value of derivative
liability
|
|
595,512
|
|
|
208,429
|
|
Amortization of debt discount
|
|
(515,942
|
)
|
|
(180,580
|
)
|
Gain on disposal of business operation
|
|
7,761
|
|
|
2,716
|
|
Total
|
|
795,006
|
|
|
278,252
|
|
Valuation allowance
|
|
(795,006
|
)
|
|
(278,252
|
)
|
Net deferred tax asset
(liability)
|
$
|
-
|
|
$
|
-
|
|
The utilization of net operating losses may be limited by change of control provisions under IRC section 382 of the Internal Revenue code. Management has not evaluated if a change of control has taken place as of the dates of these statements.
NOTE 5 DEPOSITS AND ADVANCES
Deposits with PetroChase
On September 9, 2016, the Company
acquired 100% interest in Black Box Energy, Inc. a company incorporated in the
State of Nevada. Black Box Energy will purchase 50% of the working interest in
the McKean County Project from PetroChase, Inc. (PetroChase) The consideration
paid for the 50% interest in McKean County Project, is in the following amounts:
|
First Payment made on 09/09/2016 for an amount
of $125,000;
|
|
Second Payment made on 09/16/2016 for an amount
of $125,000; and
|
|
Management Fees Payment for an amount of
$30,000 within 90 days after the Second Payment.
|
The first two payments totaling
$250,000 were made to PetroChase in September 2016 and were reflected as a
Deposit on the Companys balance sheet. The Company is currently in dispute with
PetroChase regarding the well that was not drilled in accordance with the
agreement, and has filed a complaint against PetroChase in the Superior Court of
the State of Arizona on March 22, 2017. The management fee payments have been
postponed until this issue has been resolved (See Note 10).
F-16
The Company assessed the deposits
for impairment and determined that the full amount was impaired as of June 30,
2017, and is reflected as impairment of deposit of $250,000 on the Companys
consolidated statement of operations.
Joint Development and Option Agreement with White Top
On April 13, 2017, the Companys
wholly-owned subsidiary, BBE, entered into a Joint Development and Option
Agreement with White Top Oil & Gas, LLC (White Top), a Louisiana limited
liability company (the White Top Agreement), under which White Top is the
designee to a funding agreement to finance and participate in the completion of
certain oil and gas development, exploration and operating activities on certain
lands located in Sulphur, Louisiana. Under the terms of the White Top Agreement,
BBE has advanced $783,620 as of June 30, 2017 to White Top as consideration,
which is reflected as Advances to White Top on the Companys balance sheet (see
Note 10).
In August 2017, the Company made additional payments of $45,000
under the White Top Agreement.
NOTE 6 PROMISSORY NOTES
Summary of promissory notes at June 30, 2017 and 2016 is as
follows:
|
|
|
|
|
Reclassification
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
|
(Transfer)
|
|
|
(Payments)
|
|
|
June 30,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 16, 2016
|
$
|
- $
|
|
|
460,000
|
|
$
|
(460,000
|
)
|
$
|
-
|
|
October 18, 2016
|
|
-
|
|
|
60,000
|
|
|
(60,000
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
- $
|
|
|
520,000
|
|
$
|
(520,000
|
)
|
$
|
-
|
|
The above promissory notes are
short-term notes that carry no interest. All of the promissory notes were
settled by the end of fiscal year 2017.
NOTE 7 CONVERTIBLE PROMISSORY NOTES
Summary of convertible promissory notes at June 30, 2017 and
2016 is as follows:
|
|
|
|
|
|
|
|
Accretion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
|
|
|
|
|
|
|
|
|
Transfer
|
|
|
|
|
|
|
June 30,
|
|
|
Principal
|
|
|
Issuance
|
|
|
Total
|
|
|
|
|
|
(Loan
|
|
|
June 30,
|
|
|
|
2016
|
|
|
Issued
|
|
|
Cost
|
|
|
Converted
|
|
|
Repaid
|
|
|
Extinguished)
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 13, 2013
|
$
|
21,908
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(10,954
|
)
|
$
|
-
|
|
$
|
10,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 22, 2014
|
|
185,315
|
|
|
-
|
|
|
-
|
|
|
(162,789
|
)
|
|
-
|
|
|
(15,304
|
)
|
|
7,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 22, 2014
|
|
15,768
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(15,768
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 6, 2015
|
|
7,150
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 9, 2015
|
|
10,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,220
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 24, 2015
|
|
76,239
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(76,239
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 3, 2015
|
|
36,000
|
|
|
-
|
|
|
-
|
|
|
(36,000
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 9, 2015
|
|
30,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
30,000
|
|
F-17
September 30, 2015
|
|
20,800
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(20,800
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 6, 2015
|
|
12,000
|
|
|
-
|
|
|
-
|
|
|
(12,000
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 1, 2015
|
|
36,000
|
|
|
-
|
|
|
-
|
|
|
(18,000
|
)
|
|
-
|
|
|
(18,000
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 3, 2015
|
|
17,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(17,000
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 27, 2016
|
|
29,750
|
|
|
-
|
|
|
-
|
|
|
(24,750
|
)
|
|
-
|
|
|
(5,000
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 1, 2016
|
|
49,197
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(49,197
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 1, 2016
|
|
13,200
|
|
|
-
|
|
|
-
|
|
|
(13,200
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 24, 2016
|
|
12,100
|
|
|
-
|
|
|
-
|
|
|
(12,100
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2016
|
|
42,986
|
|
|
-
|
|
|
-
|
|
|
(2,216
|
)
|
|
-
|
|
|
(40,770
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 19, 2016
|
|
197,067
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(197,067
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2016
|
|
30,250
|
|
|
-
|
|
|
-
|
|
|
(30,250
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 12, 2016
|
|
-
|
|
|
40,000
|
|
|
5,712
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
45,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 7, 2016
|
|
-
|
|
|
100,000
|
|
|
16,000
|
|
|
(169,920
|
)
|
|
-
|
|
|
53,920
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 8, 2016
|
|
-
|
|
|
25,000
|
|
|
2,201
|
|
|
(120,000
|
)
|
|
-
|
|
|
120,000
|
|
|
27,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 9, 2016
|
|
-
|
|
|
125,000
|
|
|
14,810
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
139,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 9, 2016
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(87,772
|
)
|
|
-
|
|
|
108,697
|
|
|
20,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 15, 2016
|
|
-
|
|
|
232,000
|
|
|
21,059
|
|
|
(253,059
|
)
|
|
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 16, 2016
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(232,500
|
)
|
|
232,500
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 19, 2016
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(233,000
|
)
|
|
|
|
|
1,398,000
|
|
|
1,165,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 27, 2016
|
|
-
|
|
|
110,000
|
|
|
11,655
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
121,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 10, 2016
|
|
-
|
|
|
-
|
|
|
6,677
|
|
|
-
|
|
|
-
|
|
|
93,063
|
|
|
99,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 19, 2016
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(35,000
|
)
|
|
35,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 27, 2016
|
|
-
|
|
|
40,000
|
|
|
5,365
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
45,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2016
|
|
-
|
|
|
147,000
|
|
|
10,594
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
157,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 14, 2016
|
|
-
|
|
|
25,000
|
|
|
3,569
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
28,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 22, 2016
|
|
-
|
|
|
25,000
|
|
|
2,693
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
27,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2016
|
|
-
|
|
|
87,000
|
|
|
7,215
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
94,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 23, 2016
|
|
-
|
|
|
37,500
|
|
|
3,721
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
41,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29, 2016
|
|
-
|
|
|
82,000
|
|
|
4,432
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
86,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 17, 2017
|
|
-
|
|
|
42,500
|
|
|
3,679
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
46,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 25, 2017
|
|
-
|
|
|
100,000
|
|
|
12,735
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
112,735
|
|
F-18
January 26, 2017
|
|
-
|
|
|
68,500
|
|
|
12,207
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
80,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 27, 2017
|
|
-
|
|
|
100,000
|
|
|
6,680
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
106,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 3, 2017
|
|
-
|
|
|
68,500
|
|
|
4,723
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
73,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 1, 2017
|
|
-
|
|
|
316,800
|
|
|
14,954
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
331,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 13, 2017
|
|
-
|
|
|
75,000
|
|
|
3,074
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
78,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 20, 2017
|
|
-
|
|
|
198,800
|
|
|
7,237
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
206,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 4, 2017
|
|
-
|
|
|
123,800
|
|
|
4,158
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
127,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 2, 2017
|
|
-
|
|
|
25,000
|
|
|
763
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
25,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 5, 2017
|
|
-
|
|
|
25,000
|
|
|
755
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
25,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 15, 2017
|
|
-
|
|
|
300,000
|
|
|
8,729
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
308,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 17, 2017
|
|
-
|
|
|
300,000
|
|
|
9,655
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
309,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 8, 2017
|
|
-
|
|
|
75,000
|
|
|
1,985
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
76,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 8, 2017
|
|
-
|
|
|
75,000
|
|
|
1,985
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
76,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
-
|
|
|
100,063
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
100,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
842,950
|
|
$
|
3,069,463
|
|
$
|
209,022
|
|
$
|
(1,175,056
|
)
|
$
|
(278,454
|
)
|
$
|
1,575,815
|
|
$
|
4,243,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Unamortized debt discount
|
$
|
(223,181
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,402,631
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total note payable, net of debt discount
|
$
|
619,769
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
2,841,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
$
|
619,769
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
2,841,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term portion
|
$
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
-
|
|
On August 12, 2016 Company issued an aggregate of $46,750
Convertible Promissory Notes with an issuance discount of $4,250 and $2,500 for
legal fees that matures on August 12, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 65% of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $64,723 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
F-19
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
371.21%
|
|
Risk free rate:
|
|
0.56%
|
|
The initial fair values of the
embedded debt derivative $46,750 was allocated as a debt discount up to the
proceeds of the note with the remainder $17,973 was charged to current period
operations as interest expense.
On September 7, 2016 Company
issued an aggregate of $116,000 Convertible Promissory Notes with an issuance
cost of $16,000 that matures on September 7, 2017. These notes bear 10% interest
per annum and the Holder of this Note is entitled, at its option, at any time,
to convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50%
discount of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $122,726 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
371.21%
|
|
Risk free rate:
|
|
0.57%
|
|
The initial fair values of the
embedded debt derivative $116,000 was allocated as a debt discount up to the
proceeds of the note with the remainder $6,726 was charged to current period
operations as interest expense.
On September 7, 2016 Company had
transferred an aggregate of $50,000 plus accrued interest of $3,919 in
Convertible Promissory Notes from one debt holder to another. The transfer was
treated as a modification of the Convertible Promissory Notes. The Convertible
Promissory Notes matures on September 7, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50%
discount of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
On September 7, 2016 Company
issued an aggregate of $32,500 Convertible Promissory Notes that matures on
September 16, 2017. These Convertible Promissory Notes were issued as a part of
settlement agreement for maturing in total $37,800 of Convertible Promissory
Notes and $2,827 of accrued interest. The Company also agreed to pay $50,000 in
cash which is included under non-convertible promissory notes as described in
Note 6.
These notes bear 8% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 65% of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $53,765 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
F-20
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
371.21%
|
|
Risk free rate:
|
|
0.57%
|
|
The initial fair values of the
embedded debt derivative $23,816 was allocated as a debt discount towards the
proceeds of the note with the remainder $29,949 was charged to current period
operations as interest expense.
On September 7, 2016 Company
issued an aggregate of $75,000 Convertible Promissory Notes that matures on
September 16, 2017. These Convertible Promissory Notes were issued as a part of
settlement agreement for maturing in total $99,239 of Convertible Promissory
Notes and $14,925 of accrued interest. The Company also agreed to pay $160,000
in cash which is included under with the non-convertible promissory notes as
described in Note 6.
These notes bear 8% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 65% of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $121,129 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
371.21%
|
|
Risk free rate:
|
|
0.57%
|
|
The initial fair values of the
embedded debt derivative $54,960 was allocated as a debt discount towards the
proceeds of the note with the remainder $66,170 was charged to current period
operations as interest expense
On September 8, 2016 Company had
transferred an aggregate of $15,304 plus accrued interest of $104,696 in
Convertible Promissory Notes from one debt holder to another. The transfer was
treated as a modification of the Convertible Promissory Notes. The Convertible
Promissory Notes matures on September 8, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50%
discount of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $90,498 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
241.19%
|
|
Risk free rate:
|
|
.85%
|
|
The initial fair values of the
embedded debt derivative $78,957 was allocated as a debt discount of the note
with the remainder $11,542 was charged to current period operations as interest
expense.
F-21
On September 8, 2016 Company
issued an aggregate of $27,778 Convertible Promissory Notes with issuance cost
of $2,778 that matures on September 8, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50%
discount of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $59,408 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
371.21%
|
|
Risk free rate:
|
|
0.57%
|
|
The initial fair values of the
embedded debt derivative $27,778 was allocated as a debt discount up to the
proceeds of the note with the remainder $31,630 was charged to current period
operations as interest expense.
On September 9, 2016 Company
issued an aggregate of $144,100 Convertible Promissory Notes with issuance cost
of $19,100 that matures on September 9, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 65%
discount of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $47,089 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
371.21%
|
|
Risk free rate:
|
|
0.58%
|
|
The initial fair values of the
embedded debt derivative $47,089 was allocated as a debt discount towards the
proceeds of the note with the remainder $0.00 was charged to current period
operations as interest expense.
On September 15, 2016 Company
issued an aggregate of $257,778 Convertible Promissory Notes with issuance cost
of $25,778 that matures on September 15, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50%
discount of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value of
the derivatives as of the inception date of the Convertible Promissory Note and
to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $88,122 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
F-22
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
371.21%
|
|
Risk free rate:
|
|
0.60%
|
|
The initial fair values of the
embedded debt derivative $88,122 was allocated as a debt discount towards the
proceeds of the note with the remainder $0.00 was charged to current period
operations as interest expense.
On September 16, 2016 Company
issued an aggregate of $25,000 Convertible Promissory Notes that matures on
September 16, 2017. These Convertible Promissory Notes were issued as a part of
settlement agreement for maturing Convertible Promissory Notes and accrued
interest. The Company also agreed to pay $50,000 in cash which is included under
the non-convertible promissory notes as described in Note 6.
These notes bear 8% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 65% of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $36,510 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
371.21%
|
|
Risk free rate:
|
|
0.61%
|
|
The initial fair values of the
embedded debt derivative $13,462 was allocated as a debt discount up to the
proceeds of the note with the remainder $23,048 was charged to current period
operations as interest expense.
On September 16, 2016 Company
issued an aggregate of $100,000 Convertible Promissory Notes that matures on
September 16, 2017. These Convertible Promissory Notes were issued as a part of
settlement agreement for maturing in total $49,197 of Convertible Promissory
Notes, $2,426 of accrued interest and warrants. The Company also agreed to pay
$50,000 in cash which is included under in conjunctions with the non-convertible
promissory notes as described in Note 6.
These notes bear 8% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 65% of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $75,414 of the embedded derivative.
F-23
The fair value of the embedded derivative was determined using
the Black Scholes Model based on the following assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
371.21%
|
|
Risk free rate:
|
|
0.61%
|
|
The initial fair values of the
embedded debt derivative $53,846 was allocated as a debt discount towards the
proceeds of the note with the remainder $21,568 was charged to current period
operations as interest expense.
On September 19, 2016 Company
issued an aggregate of $708,000 Convertible Promissory Notes that matures on
September 19, 2017. These Convertible Promissory Notes were issued as a part of
settlement agreement for cancellation of outstanding warrants.
These notes bear 8% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 60% of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $82,535 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
371.21%
|
|
Risk free rate:
|
|
0.60%
|
|
The initial fair values of the
embedded debt derivative $82,535 was allocated as a debt discount up to the
proceeds of the note with the remainder $0.00 was charged to current period
operations as interest expense.
On September 19, 2016 Company
issued an aggregate of $550,000 Convertible Promissory Notes that matures on
September 19, 2017. These Convertible Promissory Notes were issued as a part of
settlement agreement for cancellation of outstanding Warrants.
These notes bear 8% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 65% of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $82,361 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
371.21%
|
|
Risk free rate:
|
|
0.60%
|
|
F-24
The initial fair values of the
embedded debt derivative $82,361 was allocated as a debt discount up to the
proceeds of the note with the remainder $0.00 was charged to current period
operations as interest expense.
On September 19, 2016 Company
issued an aggregate of $140,000 Convertible Promissory Notes that matures on
September 19, 2017. These Convertible Promissory Notes were issued as a part of
settlement agreement for cancellation of outstanding Warrants.
These notes bear 8% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 65% of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $82,361 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
371.21%
|
|
Risk free rate:
|
|
0.60%
|
|
The initial fair values of the
embedded debt derivative $82,361 was allocated as a debt discount up to the
proceeds of the note with the remainder $0.00 was charged to current period
operations as interest expense.
On September 27, 2016 Company
issued an aggregate of $64,900 Convertible Promissory Notes with issuance cost
of $9,900 that matures on September 27, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 65% of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $23,828 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
371.21%
|
|
Risk free rate:
|
|
0.58%
|
|
The initial fair values of the
embedded debt derivative $23,828 was allocated as a debt discount wards the
proceeds of the note with the remainder $0.00 was charged to current period
operations as interest expense.
On September 29, 2016 Company
issued an aggregate of $61,112 Convertible Promissory Notes with issuance cost
of $6,112 that matures on September 29, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common
stock at a price equal to 50% discount of the lowest trading price of the Common
Stock as reported on the OTC Markets for the twenty prior trading days including
the day upon which a Notice of Conversion is received.
F-25
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $63,730 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
371.21%
|
|
Risk free rate:
|
|
0.59%
|
|
The initial fair values of the
embedded debt derivative $61,112 was allocated as a debt discount up to the
proceeds of the note with the remainder $2,618 was charged to current period
operations as interest expense.
As a part of settlement agreement
for maturing in total $15,768 of Convertible Promissory Notes, $4,505 of accrued
interest and warrants valuing $120,500, the Company agreed to pay $150,000 in
cash which is included under in conjunctions with the non-convertible promissory
notes as described in Note 6.
On October 10, 2016 Company
issued an aggregate of $102,369 Convertible Promissory Notes with no issuance
costs that matures on October 10, 2017. These notes bear 10% interest per annum
and the Holder of this Note is entitled, at its option, at any time, to convert
all or any amount of the principal face amount of this Note then outstanding
into shares of the Company's common stock at a price equal to 50% discount of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $74,334 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
241.19%
|
|
Risk free rate:
|
|
0.85%
|
|
The initial fair values of the
embedded debt derivative $74,334 was allocated as a debt discount and no amounts
allocated to interest expense.
On October 19, 2016 Company
issued an aggregate of $35,000 Convertible Promissory Notes with no issuance
costs that matures on October 19, 2017. These notes bear 8% interest per annum
and the Holder of this Note is entitled, at its option, at any time, to convert
all or any amount of the principal face amount of this Note then outstanding
into shares of the Company's common stock at a price equal to 65% discount of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value of
the derivatives as of the inception date of the Convertible Promissory Note and
to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $44,093 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
F-26
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
241.19%
|
|
Risk free rate:
|
|
0.85%
|
|
The initial fair values of the
embedded debt derivative $18,846 was allocated as a debt discount of the note
with the remainder $25,247 was charged to current period operations as interest
expense.
On October 27, 2016 Company
issued an aggregate of $48,400 Convertible Promissory Notes with issuance cost
of $8,400 that matures on October 27, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50%
discount of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $27,583 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
241,19%
|
|
Risk free rate:
|
|
0.85%
|
|
The initial fair values of the
embedded debt derivative $27,583 was allocated as a debt discount up to the
proceeds of the note and no amounts allocated to interest expense.
On October 31, 2016 Company
issued an aggregate of $163,334 Convertible Promissory Notes with issuance cost
of $16,334 that matures on October 31, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to lesser
of $0.005 or 50% discount of the lowest trading price of the Common Stock as
reported on the OTC Markets for the twenty prior trading days including the day
upon which a Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $63,303 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
241.19%
|
|
Risk free rate:
|
|
0.85%
|
|
F-27
The initial fair values of the
embedded debt derivative $63,303 was allocated as a debt discount and no amounts
allocated to interest expense.
On November 14, 2016 Company
issued an aggregate of $31,111 Convertible Promissory Notes with issuance cost
of $6,111 that matures on November 14, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to lesser
of $0.005 or 50% discount of the lowest trading price of the Common Stock as
reported on the OTC Markets for the twenty prior trading days including the day
upon which a Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $47,670 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
241.19%
|
|
Risk free rate:
|
|
0.85%
|
|
The initial fair values of the
embedded debt derivative $25,000 was allocated as a debt discount of the note
with the remainder $22,670 was charged to current period operations as interest
expense.
On November 22, 2016 Company
issued an aggregate of $29,700 Convertible Promissory Notes with issuance cost
of $4,700 that matures on November 22, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50%
discount of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $19,950 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
241.19%
|
|
Risk free rate:
|
|
0.59%
|
|
The initial fair values of the embedded debt derivative $19,950
was allocated as a debt discount.
On November 30, 2016 Company
issued an aggregate of $100,000 Convertible Promissory Notes with issuance cost
of $13,000 that matures on November 30, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to lesser
of $0.005 or 50% discount of the lowest trading price of the Common Stock as
reported on the OTC Markets for the twenty prior trading days including the day
upon which a Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value of
the derivatives as of the inception date of the Convertible Promissory Note and
to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $63,665 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
F-28
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
241.19%
|
|
Risk free rate:
|
|
0.59%
|
|
The initial fair values of the
embedded debt derivative $63,665 was allocated as a debt discount and no amounts
allocated to interest expense.
On December 23, 2016 Company
issued an aggregate of $45,100 Convertible Promissory Notes with issuance cost
of $7,600 that matures on December 23, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50%
discount of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $22,112 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
241.19%
|
|
Risk free rate:
|
|
0.85%
|
|
The initial fair values of the embedded debt derivative $22,112
was allocated as a debt discount.
On December 29, 2016 Company
issued an aggregate of $91,111 Convertible Promissory Notes with issuance cost
of $9,111 that matures on December 29, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to lesser
of $0.005 or 50% discount of the lowest trading price of the Common Stock as
reported on the OTC Markets for the twenty prior trading days including the day
upon which a Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet* date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $68,524 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
241.19%
|
|
Risk free rate:
|
|
0.85%
|
|
F-29
The initial fair values of the
embedded debt derivative $68,524 was allocated as a debt discount up to the
proceeds of the note and no amounts allocated to interest expense.
On January 17, 2017 Company
issued an aggregate of $51,150 Convertible Promissory Notes with issuance cost
of $8,650 that matures on January 17, 2018. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50%
discount of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $218,566 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
284.38%
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $42,500 was allocated as a debt discount up to the
proceeds of the note with the remainder $176,066 charged to current period
operations as interest expense.
On January 25, 2017 Company
issued an aggregate of $132,222 Convertible Promissory Notes with issuance cost
of $32,222 that matures on January 25, 2018. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to lesser
of $0.005 or 50% discount of the lowest trading price of the Common Stock as
reported on the OTC Markets for the twenty prior trading days including the day
upon which a Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $594,279 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
284.38%
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $100,000 was allocated as a debt discount up to the
proceeds of the note with the remainder $494,279 charged to current period
operations as interest expense.
On January 26, 2017 Company
issued an aggregate of $99,833 Convertible Promissory Notes with issuance cost
of $31,333 that matures on January 26, 2018. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to lesser
of $0.005 or 50% discount of the lowest trading price of the Common Stock as
reported on the OTC Markets for the twenty prior trading days including the day
upon which a Notice of Conversion is received.
F-30
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $552,754 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
284.38%
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $68,500 was allocated as a debt discount up to the
proceeds of the note with the remainder $484,254 charged to current period
operations as interest expense.
On January 27, 2017 Company
issued an aggregate of $116,600 Convertible Promissory Notes with issuance cost
of $16,600 that matures on January 27, 2018. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50%
discount of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $269,317 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
284.38%
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $100,000 was allocated as a debt discount up to the
proceeds of the note with the remainder $169,317 charged to current period
operations as interest expense.
On February 3, 2017 Company
issued an aggregate of $80,850 Convertible Promissory Notes with issuance cost
of $12,350 that matures on February 3, 2018. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50%
discount of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $241,447 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
284.38%
|
|
Risk free rate:
|
|
1.03%
|
|
F-31
The initial fair values of the
embedded debt derivative $68,500 was allocated as a debt discount up to the
proceeds of the note with the remainder $172,947 charged to current period
operations as interest expense.
On March 1, 2017 Company issued an aggregate of $181,209
Convertible Promissory Notes with issuance cost of $22,809 that matures on March
1, 2018. These notes bear 10% interest per annum and the Holder of this Note is
entitled, at its option, at any time, to convert all or any amount of the
principal face amount of this Note then outstanding into shares of the Company's
common stock at a price equal to 50% discount of the lowest trading price of the
Common Stock as reported on the OTC Markets for the twenty prior trading days
including the day upon which a Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $130,829 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
284.38%
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $130,829 was allocated as a debt discount up to the
proceeds of the note and no amounts allocated to interest expense.
On March 1, 2017 Company issued
an aggregate of $183,056 Convertible Promissory Notes with issuance cost of
$24,656 that matures on March 1, 2018. These notes bear 10% interest per annum
and the Holder of this Note is entitled, at its option, at any time, to convert
all or any amount of the principal face amount of this Note then outstanding
into shares of the Company's common stock at a price equal to lesser of $0.005
or 50% discount of the lowest trading price of the Common Stock as reported on
the OTC Markets for the twenty prior trading days including the day upon which a
Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $261,920 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
284.38%
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $158,400 was allocated as a debt discount up to the
proceeds of the note with the remainder $103,520 charged to current period
operations as interest expense.
On March 13, 2017 Company issued
an aggregate of $85,800 Convertible Promissory Notes with issuance cost of
$10,800 that matures on March 13, 2018. These notes bear 10% interest per annum
and the Holder of this Note is entitled, at its option, at any time, to convert
all or any amount of the principal face amount of this Note then outstanding
into shares of the Company's common stock at a price equal to lesser of $0.005
or 50% discount of the lowest trading price of the Common Stock as reported on
the OTC Markets for the twenty prior trading days including the day upon which a
Notice of Conversion is received.
F-32
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $153,245 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
284.38%
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $75,000 was allocated as a debt discount up to the
proceeds of the note with the remainder $78,245 charged to current period
operations as interest expense.
On March 20, 2017 Company issued
an aggregate of $85,800 Convertible Promissory Notes with issuance cost of
$10,800 that matures on March 20, 2018. These notes bear 10% interest per annum
and the Holder of this Note is entitled, at its option, at any time, to convert
all or any amount of the principal face amount of this Note then outstanding
into shares of the Company's common stock at a price equal to 50% discount of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $119,337 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
284.38%
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $75,000 was allocated as a debt discount up to the
proceeds of the note with the remainder $44,337 charged to current period
operations as interest expense.
On March 28, 2017 Company issued
an aggregate of $141,680 Convertible Promissory Notes with issuance cost of
$17,880 that matures on March 28, 2018. These notes bear 10% interest per annum
and the Holder of this Note is entitled, at its option, at any time, to convert
all or any amount of the principal face amount of this Note then outstanding
into shares of the Company's common stock at a price equal to lesser of $0.005
or 50% discount of the lowest trading price of the Common Stock as reported on
the OTC Markets for the twenty prior trading days including the day upon which a
Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $226,203 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
F-33
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
284.38%
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $123,800 was allocated as a debt discount up to the
proceeds of the note with the remainder $102,403 charged to current period
operations as interest expense.
On April 4, 2017, the Company
issued an aggregate of $141,627 Convertible Secured Redeemable Note with
issuance cost of $17,827 that matures on April 4, 2018. These notes bear 10%
interest per annum and the Holder of this Note is entitled, at its option, at
any time, to convert all or any amount of the principal face amount of this Note
then outstanding into shares of the Company's common stock at a price equal to
50% of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $94,779 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
261.15%
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the embedded debt derivative $94,779
was allocated as a debt discount.
On May 2, 2017, the Company
issued an aggregate of $28,600 Convertible Secured Redeemable Note with issuance
cost of $3,600 that matures on May 2, 2018. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50% of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $58,674 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
261.15%
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $25,000 was allocated as a debt discount up to the
proceeds of the note with the remainder $33,674 charged to current period
operations as interest expense.
On May 5, 2017, the Company
issued an aggregate of $28,600 Convertible Secured Redeemable Note with issuance
cost of $3,600 that matures on May 5, 2018. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50% of
the lowest trading price of the Common Stock as reported on the OTC Markets for the twenty
prior trading days including the day upon which a Notice of Conversion is
received.
F-34
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $67,746 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
261.15%
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $25,000 was allocated as a debt discount up to the
proceeds of the note with the remainder $42,746 charged to current period
operations as interest expense.
On May 17, 2017, the Company
issued an aggregate of $687,850 Convertible Promissory Notes with issuance cost
of $87,850 that mature on May 15, 2018. These notes bear 10% interest per annum
and the Holder of this Note is entitled, at its option, at any time, to convert
all or any amount of the principal face amount of this Note then outstanding
into shares of the Company's common stock at the lesser of $0.005 per share or
at a price equal to 50% of the lowest trading price of the Common Stock as
reported on the OTC Markets for the twenty prior trading days including the day
upon which a Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $242,348 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
261.15%
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the embedded debt derivative
$242,348 was allocated as a debt discount.
On June 8, 2017, the Company
issued an aggregate of $171,600 Convertible Promissory Notes that with issuance
cost of $21,600 that mature on June 8, 2018. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50% of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $218,694 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
F-35
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
261.15%
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $144,720 was allocated as a debt discount with the
remainder $73,974 charged to current period operations as interest expense.
On June 30, 2017, the Company
issued an aggregate of $114,400 Convertible Promissory Notes with issuance cost
of $14,400 that mature on May 18, 2018. These notes bear 10% interest per annum
and the Holder of this Note is entitled, at its option, at any time, to convert
all or any amount of the principal face amount of this Note then outstanding
into shares of the Company's common stock at a price equal to 50% of the lowest
trading price of the Common Stock as reported on the OTC Markets for the twenty
prior trading days including the day upon which a Notice of Conversion is
received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $160,829 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
Dividend yield:
|
|
0.00%
|
|
Volatility
|
|
261.15%
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $100,000 was allocated as a debt discount up to the
proceeds of the note with the remainder $60,829 charged to current period
operations as interest expense.
The modification of the Notes was
evaluated under FASB Accounting Standards Codification (ASC) Topic No.
470-50-40, Debt Modification and Extinguishments. Therefore, according to the
guidance, the instruments were determined to be substantially different, and the
transaction qualified for extinguishment accounting. During the year ended June
30, 2017, $1,527,301 was recorded as loss on extinguishment of debt due to
settlement agreement with note holders. The $1,527,301 consists of net increase
in principal of convertible promissory notes of $1,417,101 (net of extinguished
interests of $158,778), increase in principal of non-convertible promissory
notes of $520,000, extinguished derivative liabilities for debt and warrants
with fair values on date of conversion was $298,728 and $111,072 respectively.
On June 28, 2017, the Company
entered into a Note and Warrant Repayment and Repurchase Agreement whereby the
Company agreed to repurchase 1,011 warrants and settle an outstanding
convertible note payable from the holder totaling $21,908 for two payments to
the holder of $100,000. The first $100,000 payment was made on June 30, 2017
resulting in the repurchase of 506 warrants and a $10,954 reduction of the note.
The portion of the payment allocated to the warrant repurchase $89,046 was
recorded as a loss on settlement and is included in interest expense for the
year ended June 30, 2017. The second and final $100,000 payment was made to the
holder on July 3, 2017, resulting in the repurchase of the remaining 505
warrants and settlement of the remaining balance of the note of $10,954.
During the year ended June 30,
2017 and 2016 the Company amortized the debt discount on all the notes of
$1,879,437 and $515,942, respectively to operations as expense including
$209,023 and $0, respectively, for accretion expenses.
During the year ended June 30,
2017, $278,454 cash was paid to note holders and the change in derivative
liability on date of payment of such notes were charged to gain or loss on
change in fair value of derivative liability under statement of operation. No
cash payments were made to note holders for the year ended June 30, 2016
F-36
Derivative Liability - Debt
The fair value of the described
embedded derivative on all debt was valued at $3,386,252 and $1,162,058 at June
30, 2017 and 2016, respectively, which was determined using the Black Scholes
Model with the following assumptions:
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
Dividend yield:
|
|
0 %
|
|
|
0%
|
|
Volatility
|
|
247.5 284.4 %
|
|
|
346.6 453.3%
|
|
Risk free rate:
|
|
1.03 1.89 %
|
|
|
0.39%-0.66%
|
|
The Company recorded change in
fair value of the derivative liability on debt to market resulting in non-cash,
non-operating gain of $948,842 and $743,224 for the year ended June 30,
2017 and 2016, respectively.
During the year ended June 30,
2017 and 2016 the Company issued 2,339,379,237 and 109,612,491 shares of the
Companys common stock in settlement of $1,266,819 and $476,901, respectively,
of convertible note and interest.
During the year ended June 30,
2017 and 2016 the Company reclassed the derivative liability of $1,818,596 and
$768,175, respectively, to additional paid in capital on conversion of
convertible note.
The following table provides a
summary of changes in fair value of the Companys Level 3 financial liabilities
as of June 30, 2017 and 2016:
|
|
Derivative
|
|
|
|
Liability
(convertible
|
|
|
|
promissory notes)
|
|
Balance, June 30, 2015
|
$
|
1,646,448
|
|
Initial fair value at note issuances
|
|
1,027,009
|
|
Fair value of liability at
note conversion
|
|
(768,175
|
)
|
Mark-to-market at June 30, 2016
|
|
(743,224
|
)
|
Balance, June 30, 2016
|
$
|
1,162,058
|
|
Initial fair value at note issuances
|
|
5,290,359
|
|
Fair value of liability at
note conversion
|
|
(1,818,596
|
)
|
Extinguishment of derivative liability
|
|
(298,728
|
)
|
Mark-to-market at June 30,
2017
|
|
(948,842
|
)
|
|
|
|
|
Balance, June 30, 2017
|
$
|
3,386,251
|
|
Net gain for the period included in earnings
relating to the liabilities held at June 30, 2017
|
$
|
948,842
|
|
Derivative Liability- Warrants
Along with the promissory notes,
the Company issued warrants that bear a cashless exercise provision. The
warrants also include anti-dilution protection with respect to lower priced
issuances of common stock or securities convertible or exchangeable into common
stock, which provision resulted in derivative liability treatment under ASC 480.
The warrants are recorded at fair value using the Black-Scholes option pricing
model and marked-to-market at each reporting period, with the changes in the
fair value recorded in the consolidated statement of operations and
comprehensive income (loss).
During the year ended June 30, 2017 and 2016 no warrants were
issued along with convertible notes.
F-37
The fair value of the described
embedded derivative on all warrants was valued at $338,873 at June 30, 2017 and
$268,611 at June 30, 2016 which was determined using the Black Scholes Model
with the following assumptions:
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
Dividend yield:
|
|
0 %
|
|
|
0%
|
|
Volatility
|
|
247.5 %
|
|
|
229.1 275.4%
|
|
Risk free rate:
|
|
1.89 %
|
|
|
0.71 1.01%
|
|
|
|
Warrants
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
Outstanding
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
|
|
|
|
Price
|
|
|
life
|
|
Balance, June 30, 2015
|
|
27,092
|
|
$
|
100.98
|
|
|
3.79 years
|
|
Exercised
|
|
(120
|
)
|
|
280.00
|
|
|
-
|
|
Issued
|
|
-
|
|
|
-
|
|
|
-
|
|
Expired
|
|
-
|
|
|
-
|
|
|
-
|
|
Cancelled
|
|
-
|
|
|
-
|
|
|
-
|
|
Balance, June 30, 2016
|
|
26,972
|
|
$
|
100.20
|
|
|
2.79 years
|
|
Exercised
|
|
(117
|
)
|
|
212.40
|
|
|
-
|
|
Issued
|
|
-
|
|
|
-
|
|
|
-
|
|
Expired
|
|
(550
|
)
|
|
280.00
|
|
|
-
|
|
Cancelled
|
|
(11,575
|
)
|
|
190.80
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2017
|
|
14,730
|
|
$
|
213.76
|
|
|
2.55 years
|
|
The following table provides a
summary of changes in fair value of the Companys Level 3 financial liabilities
as of June 30, 2017 and 2016:
|
|
Derivative
|
|
|
|
Liability (warrants)
|
|
Balance, June 30, 2015
|
$
|
143,375
|
|
Initial fair value of warrant derivatives at
note issuances
|
|
-
|
|
Fair value of warrant
exercised
|
|
(22,476
|
)
|
Mark-to-market at June 30, 2016 warrant
liability
|
|
147,712
|
|
Balance, June 30, 2016
|
$
|
268,611
|
|
Fair value of warrant cancelled
|
|
(111,073
|
)
|
Fair value of warrant
exercised
|
|
(71,595
|
)
|
Mark-to-market at June 30, 2017 warrant liability
|
|
252,931
|
|
Balance, June 30, 2017
|
$
|
338,874
|
|
|
|
|
|
Net loss for the year included in earnings relating to the
liabilities held at June 30, 2017
|
$
|
252,931
|
|
The Company recorded change in
fair value of the derivative liability on warrants to market resulting in
non-cash, non-operating loss of $252,931 and $147,712 for the year ended June
30, 2017 and 2016, respectively. During the year ended June 30, 2017 and 2016
the Company reclassed the derivative liability on warrants of $71,595 and
$22,476, respectively, to additional paid in capital on exercise of warrants.
F-38
NOTE 8 RELATED PARTY TRANSACTIONS
During the year ended June 30,
2017, the Company incurred consulting fees of $97,000 (June 30, 2016 - $9,115)
with directors and officers (including directors and officers of our
subsidiaries) out of which there were no stock payments.
As of June 30, 2017, the Company
repaid to a director for a non-interest bearing demand loan of $nil (June 30,
2016 payable $nil). The balance outstanding for this loan is $115,000.
These transactions are in the
normal course of operations and are measured at the exchange amount of
consideration established and agreed to by the related parties.
NOTE 9 GOING CONCERN AND LIQUIDITY CONSIDERATIONS
The accompanying audited
consolidated financial statements have been prepared assuming that the Company
will continue as a going concern, which contemplates, among other things, the
realization of assets and satisfaction of liabilities in the normal course of
business. As of June 30, 2017, the Company had a working capital deficiency of
$6,934,640 (June 30, 2016 - $2,473,600) and an accumulated deficit of
$57,683,563 (June 30, 2016 - $50,806,439). The Company intends to fund
operations through equity financing arrangements, which may be insufficient to
fund its capital expenditures, working capital and other cash requirements for
the next twelve months.
The ability of the Company to
emerge from the exploration stage is dependent upon, among other things,
obtaining additional financing to continue operations, explore and develop the
mineral properties and the discovery, development and sale of ore reserves.
In response to these problems,
management intends to raise additional funds through public or private placement
offerings.
These factors, among others,
raise substantial doubt about the Companys ability to continue as a going
concern. The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
NOTE 10 COMMITMENTS AND CONTINGENCIES
Employment Agreements
On January 12, 2014, the Company entered into an employment agreement with a director and officer. Commencing on January 12, 2014, the director and officer will be employed for 24 months ending on January 12, 2016. Pursuant to the agreement, annual salary of US$120,000 is payable monthly in cash or if the Company does not have available cash, in shares of the Company’s common stock. The Company is currently in the process of renewing this agreement.
Lease Commitment
On May 25, 2016, the Company
entered into a sublease agreement for a term of twelve months and expired on May
30, 2017. The sublease agreement is on a month-to-month basis for $1,199 per
month beginning June 1, 2017.
Litigation
On March 22, 2017, our
wholly-owned subsidiary, Black Box Energy, Inc. (BBE), filed a complaint in
the Superior Court of the State of Arizona (Maricopa County) against PetroChase,
Inc., Warren County PC#1, LLC, Stephen R. Moore and Sheree Moore, as well as
certain unidentified, predecessor and success corporations, parent corporations
or subsidiaries of the defendants (collectively the Defendants).
F-39
In 2016 the Defendant, Stephen R.
Moore, on behalf of PetroChase, solicited investment from our Company to
subscribe to a 50% (of 70%) working interest in the McKean County Project wells.
On September 9, 2016, BBE entered into a letter agreement with PetroChase to
acquire a 50% (of 70%) working interest in the wells, in addition access to the
wells for the purposes of the developing our mechanical ultrasound technology
for use in water purification. BBE paid $250,000 to PetroChase in consideration
of the rights granted, which funds were to be used for costs associated with
development of the wells. Drilling of the wells was to be commenced within a
reasonable time and was to continue until all the wells were completed. To date,
drilling of the wells has not been completed.
The complaint seeks a return of
the $250,000 for breach of the letter agreement, treble damages ($750,000 in the
aggregate), plus attorneys fees, costs, and punitive damages. The Company has
engaged legal counsel and intends to respond to the complaint with an answer or
motion in due course.
From time to time we may be a
defendant and plaintiff in various other legal proceedings arising in the normal
course of our business. Except as disclosed above, we are currently not a party
to any material legal proceedings or government actions, including any
bankruptcy, receivership, or similar proceedings. In addition, we are not aware
of any known litigation or liabilities involving the operators of our properties
that could affect our operations. Furthermore, as of the date of this Quarterly
Report, our management is not aware of any proceedings to which any of our
directors, officers, or affiliates, or any associate of any such director,
officer, affiliate, or security holder is a party adverse to our company or has
a material interest adverse to us.
Joint Development and Option Agreement
On April 13, 2017, the Companys
wholly-owned subsidiary, Black Box Energy, Inc. (BBE), entered into a Joint
Development and Option Agreement with White Top Oil & Gas, LLC (White
Top), a Louisiana limited liability company (the White Top Agreement), under
which White Top is the designee to a funding agreement to finance and
participate in the completion of certain oil and gas development, exploration
and operating activities on certain lands located in Sulphur, Louisiana (the
White Top Field). Under the terms of the White Top Agreement, BBE has advanced
approximately $783,620 as of June 30, 2017 to White Top as consideration to
White Top for the option to convert and the right to repayment of payouts for
the necessary capital, overrating, technical, and related support costs
necessary to further develop the White Top Field. White Tops rights to
repayment of the monies received from BBE shall be limited to funding from
certain payouts received under terms agreed by the parties under such joint
development project, as mutually agreed. In August 2017, the Company made
additional payments of $45,000 under the White Top Agreement.
NOTE 11 DISCONTINUED OPERATIONS
On September 4, 2015, the Company
entered into an Asset Purchase agreement whereby the Company sells the net
assets of Alta Disposal Morinville Ltd. (of which the Company had acquired 51%
interest on October 18, 2013) for total purchase price of CDN$10,000.
Operating results for the year
ended June 30, 2017 and 2016 for Alta Disposal Morinville Ltd. are presented as
discontinued operations and the assets and liabilities classified as held for
sale are presented separately in the unaudited condensed balance sheet.
A breakdown of the discontinued operations is presented as
follow:
Consolidated Statements of Operations and Comprehensive
Loss
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
-
|
|
$
|
-
|
|
Selling, general and administrative
|
$
|
(185
|
)
|
|
(78,624
|
)
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
$
|
(185
|
)
|
$
|
(78,624
|
)
|
F-40
Consolidated Balance Sheets
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
1,115
|
|
$
|
1,301
|
|
Receivable, net
|
|
652
|
|
|
651
|
|
Prepaid expenses
|
|
1,824
|
|
|
1,822
|
|
GST Receivable
|
|
16,260
|
|
|
16,237
|
|
|
|
|
|
|
|
|
|
$
|
19,852
|
|
$
|
20,011
|
|
Current liabilities:
|
|
|
|
|
|
|
Accounts payable
|
$
|
6,429
|
|
$
|
6,420
|
|
NOTE 12 SETTLEMENT
On January 5, 2017, a warrant
holder exercised warrants to acquire 24,642,857 shares at an adjusted price of
$0.0005. The Company did not have sufficient authorized and allotted shares to
meet the obligation. A lawsuit was filed on January 31, 2017 by the warrant
holder against the Company.
The lawsuit was subsequently
settled on April 6, 2017 for 90,000,000 shares of the Companys common stock.
Under the terms of ASC 450-20,
management must assess the likelihood of loss and determine whether any
liability should be accrued with connection to the lawsuit. The Company
evaluated the terms and determined that the most representative accrual was the
fair value of the settled shares, less the fair value of the related warrant
liability, resulting in a net expense of $42,944 recorded on the statement of
operations.
NOTE 13 SUBSEQUENT EVENTS
Convertible Secured Redeemable Notes
In July, August and September
2017, the Company issued an aggregate of $335,500 Convertible Promissory Notes
that mature on various dates in May through September 2018, resulting in cash
proceeds totaling $305,000. These notes bear 10% interest per annum and the
Holder of this Note is entitled, at its option, at any time, to convert all or
any amount of the principal face amount of this Note then outstanding into
shares of the Company's common stock at the lesser of $0.005 per share or at a
price equal to 50% of the lowest trading price of the Common Stock as reported
on the OTC Markets for the twenty prior trading days including the day upon
which a Notice of Conversion is received.
Conversions
In July, August and September
2017, the Company issued an aggregate of 925,000,000 common shares at deemed
prices ranging from of $0.0003 to $0.00038 per share for promissory note and
interest conversions totaling approximately $304,125.
Shares Issued for Services
On July 31, 2017, the Company
issued 11,666,667 common shares in payment for past legal services at a deemed
value of $10,500.
F-41
Debt Settlements and Class C Preferred Shares
Effective August 11, 2017, the
Company entered into a Debt Settlement Agreement with each Blue Citi, LLC and
Concord Holding Group, LLC. On August 11, 2017, the Company was indebted to Blue
Citi and Concord in the aggregate principal amounts of $2,419,206.95 and
$1,670,450.91, respectively (exclusive of accrued interest and penalties),
pursuant to various convertible promissory notes issued to Blue Citi and Concord
between March, 2014 and June, 2017. Pursuant to the Debt Settlement Agreements,
each Blue Citi and Concord has agreed to indefinitely forbear from enforcing its
rights pursuant to the promissory notes. In consideration, the Company has
issued to each Blue Citi and Concord warrants to purchase up to $400,000 in
shares of our common stock ($800,000 in the aggregate), with 50% of the warrants
exercisable at $0.0025 per share, and 50% exercisable at $0.0035 per share. The
warrants are exercisable until August 11, 2022 and may also be exercised on a
cashless basis. In the event that the closing price of the Companys common
stock falls to $0.0005 or less for a period of 3 days during the warrant
exercise period, the exercise price of the $0.0025 per share warrants shall
adjust to 300% of the lowest trading price during such 3-day period, and the
exercise price of the $0.0035 warrants will adjust to 400% of the lowest trading
during the 3-day period. As additional consideration for the issuance of
securities to Blue Citi and Concord, promissory notes held by them that were
convertible into the Companys common stock at 50% discount to market price will
instead be subject to a 25% discount to market price.
On August 3, 2017, the Company
entered into a debt settlement subscription agreement with a creditor for
settlement of amounts owed relating to an outstanding convertible note in the
principal amount of $708,000, inclusive of accrued interest. In lieu of
receiving cash as payment, the creditor has agreed to accept 70,000,000 Class C
Convertible Preferred Shares of the Company as payment of the indebtedness,
pursuant to the terms of the settlement agreement. Thereafter, on August 23,
2017, Company issued an aggregate of 70,000,000 Class C Convertible Preferred
Shares at the deemed price of $0.0101 per share. The Company has issued all of
the shares to one U.S. person (as that term is defined in Regulation S of the
Securities Act of 1933), relying on Rule 506 promulgated under Regulation D of
the Securities Act of 1933, as amended.
On August 22, 2017, the Board of
Directors approved a Certificate of Designation authorizing the creation of
70,000,000 Class C Preferred Shares. The Class C Shares are convertible,
redeemable and have certain enhanced voting rights.
F-42