Item
1. Financial Statements
PARK
PLACE ENERGY INC.
Consolidated
Balance Sheets
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
220,316
|
|
|
$
|
1,550,937
|
|
Receivables
|
|
|
818,362
|
|
|
|
21
|
|
Prepaid expenses and deposits
|
|
|
18,031
|
|
|
|
10,924
|
|
Deposit for Tiway acquisition
|
|
|
-
|
|
|
|
500,000
|
|
Total current assets
|
|
|
1,056,709
|
|
|
|
2,061,882
|
|
|
|
|
|
|
|
|
|
|
Oil and gas properties, gross
|
|
|
6,381,034
|
|
|
|
2,939,829
|
|
Accumulated depletion
|
|
|
(483,605
|
)
|
|
|
-
|
|
Oil and gas properties, net
|
|
|
5,897,429
|
|
|
|
2,939,829
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
131,760
|
|
|
|
-
|
|
Note receivable
|
|
|
45,415
|
|
|
|
40,453
|
|
Total assets
|
|
$
|
7,131,313
|
|
|
$
|
5,042,164
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,387,154
|
|
|
$
|
357,749
|
|
Stockholder loans payable
|
|
|
931,151
|
|
|
|
899,000
|
|
Total liabilities
|
|
|
2,318,305
|
|
|
|
1,256,749
|
|
Asset retirement obligation
|
|
|
2,465,619
|
|
|
|
-
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Common stock Authorized: 250,000,000 shares, par value $0.00001 Issued and outstanding: 56,243,904 and 50,281,482 shares, respectively
|
|
|
564
|
|
|
|
503
|
|
Additional paid-in capital
|
|
|
22,610,917
|
|
|
|
21,273,494
|
|
Stock subscriptions and stock to be issued
|
|
|
-
|
|
|
|
905,000
|
|
Accumulated other comprehensive income
|
|
|
17,716
|
|
|
|
4,618
|
|
Accumulated deficit
|
|
|
(20,281,808
|
)
|
|
|
(18,398,200
|
)
|
Total stockholders’ equity
|
|
|
2,347,389
|
|
|
|
3,785,415
|
|
Total liabilities and stockholders’ equity
|
|
$
|
7,131,313
|
|
|
$
|
5,042,164
|
|
See
accompanying notes to consolidated financial statements.
PARK
PLACE ENERGY INC.
Consolidated
Statements of Operations
(unaudited)
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas sales
|
|
$
|
1,003,640
|
|
|
$
|
-
|
|
|
$
|
2,676,279
|
|
|
$
|
-
|
|
Cost and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
734,046
|
|
|
|
-
|
|
|
|
2,345,931
|
|
|
|
-
|
|
Depletion
|
|
|
237,122
|
|
|
|
-
|
|
|
|
483,605
|
|
|
|
-
|
|
Accretion of asset retirement obligation
|
|
|
60,137
|
|
|
|
-
|
|
|
|
163,118
|
|
|
|
-
|
|
General and administrative
|
|
|
403,415
|
|
|
|
3,520,369
|
|
|
|
1,758,259
|
|
|
|
3,803,323
|
|
Total expenses
|
|
|
1,434,720
|
|
|
|
3,520,369
|
|
|
|
4,750,913
|
|
|
|
3,803,323
|
|
Loss before other income (expenses)
|
|
|
(431,080
|
)
|
|
|
(3,520,369
|
)
|
|
|
(2,074,634
|
)
|
|
|
(3,803,323
|
)
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on asset sale
|
|
|
15,495
|
|
|
|
-
|
|
|
|
15,495
|
|
|
|
-
|
|
Gain on bargain purchase
|
|
|
-
|
|
|
|
-
|
|
|
|
270,565
|
|
|
|
-
|
|
Late filing penalty, taxes
|
|
|
(1,833
|
)
|
|
|
-
|
|
|
|
(11,767
|
)
|
|
|
-
|
|
Interest expense (net)
|
|
|
(20,335
|
)
|
|
|
-
|
|
|
|
(60,995
|
)
|
|
|
-
|
|
Foreign exchange gain (loss)
|
|
|
(14,399
|
)
|
|
|
(12
|
)
|
|
|
(22,272
|
)
|
|
|
1,887
|
|
Total other income (expense)
|
|
|
(21,072
|
)
|
|
|
(12
|
)
|
|
|
191,026
|
|
|
|
1,887
|
|
Net loss for the period
|
|
$
|
(452,152
|
)
|
|
$
|
(3,520,381
|
)
|
|
$
|
(1,883,608
|
)
|
|
$
|
(3,801,436
|
)
|
Loss per share, basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.08
|
)
|
Weighted average number of shares outstanding
|
|
|
56,228,108
|
|
|
|
49,984,229
|
|
|
|
56,034,121
|
|
|
|
49,930,387
|
|
See
accompanying notes to consolidated financial statements.
PARK
PLACE ENERGY INC.
Consolidated
Statements of Comprehensive Loss
(unaudited)
|
|
Three
Months Ended
|
|
Nine
Months Ended
September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net
loss for the period
|
|
$
|
(452,152
|
)
|
|
$
|
(3,520,381
|
)
|
|
$
|
(1,883,608
|
)
|
|
$
|
(3,801,436
|
)
|
Other
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency cumulative translation adjustment
|
|
|
19,058
|
|
|
|
(109
|
)
|
|
|
13,098
|
|
|
|
(202
|
)
|
Comprehensive
loss for the period
|
|
$
|
(433,094
|
)
|
|
$
|
(3,520,490
|
)
|
|
$
|
(1,870,510
|
)
|
|
$
|
(3,801,638
|
)
|
See
accompanying notes to consolidated financial statements.
PARK
PLACE ENERGY INC.
Consolidated
statements of stockholders’ equity
(unaudited)
|
|
Common Stock
|
|
|
Additional
paid-in
|
|
|
Stock subscriptions and stock to
|
|
|
Accumulated other comprehensive
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
be issued
|
|
|
Income (loss)
|
|
|
deficit
|
|
|
Total
|
|
Balance, December 31, 2016
|
|
|
50,281,482
|
|
|
$
|
505
|
|
|
$
|
21,273,494
|
|
|
$
|
905,000
|
|
|
$
|
4,618
|
|
|
$
|
(18,398,200
|
)
|
|
$
|
3,785,417
|
|
Issuance of common stock
|
|
|
5,075,000
|
|
|
|
51
|
|
|
|
1,010,949
|
|
|
|
(1,011,000
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Stock subscriptions received
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
106,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
106,000
|
|
Vesting of restricted stock units
|
|
|
887,422
|
|
|
|
8
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
8
|
|
Stock-based compensation expense
|
|
|
–
|
|
|
|
–
|
|
|
|
310,046
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
310,046
|
|
Restricted stock issued for oil and gas properties
|
|
|
–
|
|
|
|
–
|
|
|
|
16,428
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
16,428
|
|
Currency translation adjustment
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
13,098
|
|
|
|
|
|
|
|
13,098
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(1,883,608
|
)
|
|
|
(1,883,608
|
)
|
Balance, September 30, 2017
|
|
|
56,243,904
|
|
|
$
|
564
|
|
|
$
|
22,610,917
|
|
|
$
|
-
|
|
|
$
|
17,716
|
|
|
$
|
(20,281,808
|
)
|
|
$
|
2,347,389
|
|
See
accompanying notes to the consolidated financial statements.
PARK
PLACE ENERGY INC.
Consolidated
statements of cash flows
(unaudited)
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
$
|
(1,883,608
|
)
|
|
$
|
(3,801,436
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
310,046
|
|
|
|
3,468,622
|
|
Depletion
|
|
|
483,605
|
|
|
|
-
|
|
Accretion of asset retirement obligation
|
|
|
163,118
|
|
|
|
-
|
|
Gain on disposition and bargain purchase
|
|
|
(286,060
|
)
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
-
|
|
Receivables
|
|
|
(262,599
|
)
|
|
|
487
|
|
Prepaid expenses and deposits
|
|
|
390,630
|
|
|
|
938
|
|
Accounts payable and accrued liabilities
|
|
|
328,163
|
|
|
|
182,740
|
|
Restricted cash
|
|
|
(1,247
|
)
|
|
|
-
|
|
Net cash used in operating activities
|
|
|
(757,952
|
)
|
|
|
(148,649
|
)
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Issuance of note receivable
|
|
|
(4,961
|
)
|
|
|
(1,429
|
)
|
Purchase of Tiway, net of $500,000 deposit and $850,051 in acquired cash
|
|
|
(735,054
|
)
|
|
|
-
|
|
Oil and gas properties dispositions
|
|
|
16,095
|
|
|
|
-
|
|
Oil and gas properties acquisitions
|
|
|
-
|
|
|
|
(39,915
|
)
|
Net cash used in investing activities
|
|
|
(723,920
|
)
|
|
|
(41,344
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from stock subscriptions received, net
|
|
|
106,000
|
|
|
|
75,000
|
|
Proceeds from stockholder loans payable
|
|
|
32,153
|
|
|
|
52,500
|
|
Net cash provided by financing activities
|
|
|
138,153
|
|
|
|
127,500
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
13,098
|
|
|
|
(202
|
)
|
Change in cash
|
|
|
(1,330,621
|
)
|
|
|
(62,695
|
)
|
Cash, beginning of period
|
|
|
1,550,937
|
|
|
|
75,561
|
|
Cash, end of period
|
|
$
|
220,316
|
|
|
$
|
12,866
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Oil and gas expenditures included in accounts payable
|
|
$
|
26,762
|
|
|
$
|
66,015
|
|
Restricted stock issued for oil and gas properties
|
|
$
|
16,428
|
|
|
$
|
60,115
|
|
Stock issued for restricted stock units
|
|
$
|
8
|
|
|
$
|
-
|
|
Issuance of common stock for stock subscriptions
|
|
$
|
1,011,000
|
|
|
$
|
425,000
|
|
See
accompanying notes to consolidated financial statements.
PARK
PLACE ENERGY INC.
Notes
to the Consolidated Financial Statements
(unaudited)
1.
|
Summary
of Significant Accounting Policies
|
|
(a)
|
Basis
of Presentation
|
These consolidated financial statements
are unaudited and have been prepared from the books and records of Park Place Energy Inc. and its consolidated subsidiaries (“Park
Place”, the “Company”, “we”, or “our”). In our opinion, all normal and recurring adjustments
necessary for a fair presentation of the financial position of the Company as of September 30, 2017, and the results of operations
for the three and nine months ended September 30, 2017 and 2016, and cash flows for the nine months ended September 30, 2017 and
2016, have been made in conformity with generally accepted accounting principles (“GAAP”). All significant intercompany
accounts and transactions have been eliminated. These interim financial statements and notes are condensed as permitted by the
instructions to Form 10-Q and should be read in conjunction with the audited consolidated financial statements of the Company included
in its Form 10-K for the year ended December 31, 2016.
As
of September 30, 2017, we had cash and cash equivalents of $220,316, down from $1,550,937 as of December 31, 2016. We generated
a net loss of $1,883,608 for the nine months ended September 30, 2017. On January 18, 2017, the Company completed the acquisition
of three oil and gas producing fields in Turkey. The purchase price for the acquisition of the PPE Turkey Companies from Tiway
Oil B.V. was $2.1 million. Based on projections of revenue and net income for the PPE Turkey Companies and expected fund raising
activities, we believe that we will not have sufficient cash resources to finance our operations and expected capital expenditures
through September 30, 2018. We expect to fund our operations through anticipated Company profits and additional investments of
private equity and debt, which, if we are able to obtain, may have the effect of diluting our existing common stockholders. Any
equity or debt financings, if available at all, may be on terms which are not favorable to us. If our operations do not generate
positive cash flow in the upcoming year, or if we are not able to obtain additional debt or equity financing on terms and conditions
acceptable to us, if at all, we may be unable to implement our business plan, fund our liquidity needs or even continue our operations.
The
Company computes loss per share of Company stock in accordance with ASC 260 (“Earnings per Share”), which requires
presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is
computed by dividing the loss available to common shareholders (numerator) by the weighted average number of shares outstanding
(denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period
using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average
stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options
or warrants. Diluted EPS excludes dilutive potential shares if their effect is anti-dilutive. For the three and nine months ended
September 30, 2017 and 2016, the Company had 20,834,375 and 15,268,001 potentially dilutive shares outstanding that were excluded
for the diluted EPS calculation, respectively, related to options, warrants, and restricted stock.
The
preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated and combined financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Significant
estimates include, but are not limited to, oil and natural gas reserves; depreciation, depletion, and amortization of proved oil
and natural gas properties; future cash flows from oil and natural gas properties; impairment of long-lived assets; fair value
of derivatives; fair value of equity compensation; fair values of assets acquired and liabilities assumed in business combinations
and asset retirement obligations.
Certain
prior period amounts have been reclassified for consistency with the current period presentation. These reclassifications had
no effect on the reported results of operations.
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Unproven properties:
|
|
|
|
|
|
|
|
|
Bulgaria
|
|
$
|
3,092,678
|
|
|
$
|
2,939,829
|
|
Proven properties:
|
|
|
|
|
|
|
|
|
PPE Turkey, net
|
|
|
2,804,751
|
|
|
|
-
|
|
|
|
$
|
5,897,429
|
|
|
$
|
2,939,829
|
|
The
Company holds a 98,205 acre oil and gas exploration claim in the Dobrudja Basin located in northeast Bulgaria. The Company intends
to conduct exploration for natural gas and test production activities over a five year period in accordance with or exceeding
its minimum work program obligation. The Company intends to commence its work program efforts once it receives all regular regulatory
approvals of its work programs.
On
January 18, 2017, Park Place completed the acquisition of three oil and gas exploration and production companies operating in
Turkey from Tiway Oil B.V. in exchange for cash consideration of $2,100,000. On the date of acquisition, the fair value of the
identifiable net assets exceeded the purchase consideration by $270,565, which is included in the other income line of the accompanying
consolidated statement of operations for the nine months ended September 30, 2017. We incurred acquisition related expenses of
approximately $39,000 which include legal and corporate matters.
The
following table presents recognized fair value of the identifiable assets acquired and liabilities assumed at acquisition:
Assets:
|
|
|
|
|
Cash
|
|
$
|
850,051
|
|
Accounts receivable
|
|
|
641,584
|
|
Prepaid and other current assets
|
|
|
311,895
|
|
Restricted cash
|
|
|
129,913
|
|
Oil and natural gas properties – proved
|
|
|
3,414,110
|
|
Total assets
|
|
|
5,347,553
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
674,488
|
|
Asset retirement obligation
|
|
|
2,302,500
|
|
Total liabilities
|
|
|
2,976,988
|
|
|
|
|
|
|
Total identifiable net assets
|
|
|
2,370,565
|
|
Cash consideration
|
|
|
2,100,000
|
|
Bargain purchase gain
|
|
$
|
270,565
|
|
During
the three and nine month periods ended September 30, 2017, revenues of approximately $1,003,640 and $2,676,279 were recorded in
the statement of operations related to the Tiway acquisition after the closing date and we generated losses of approximately $1,883,608
for Tiway during the nine month period ended September 30, 2017 and $452,152 for the three month period ending September
30, 2017.
In
April 2015, the Company loaned $38,570 to a Bulgarian company pursuant to a revolving credit facility, enabling such Bulgarian
company to buy and manage land in Bulgaria to be leased by the Company for future well sites. The credit facility has a maximum
loan obligation of BGN 1,000,000 ($583,910 USD at September 30, 2017), bears interest at 6.32%, has a five-year term and is secured
by the land the Bulgarian company buys. Payment on the facility is due the earlier of the end of the five-year term (April 6,
2020) or demand by the Company. As of September 30, 2017, the outstanding balance on the loan obligation was $45,415.
5.
|
Stockholder
Loans Payable
|
At
September 30, 2017, the Company had principal and accrued interest for stockholder loans payable for $931,151 consisting of: principal
amount of $799,000, all which is due and payable; accrued interest at 10% per annum of $63,513 and $68,638 in unsecured advances
which are non-interest bearing.
6.
|
Asset
Retirement Obligations
|
Asset retirement obligations (“AROs”) associated with
the retirement of tangible long-lived assets are recognized as liabilities with an increase to the carrying amounts of the related
long-lived assets in the period incurred. The fair value of AROs is recognized as of the acquisition date for business combination
(see footnote 3). The cost of the tangible asset, including the asset retirement cost, is depreciated over the useful life of the
asset. AROs are recorded at estimated fair value, measured by reference to the expected future cash outflows required to satisfy
the retirement obligations discounted at the Company’s credit-adjusted risk-free interest rate. Accretion expense is recognized
over time as the discounted liabilities are accreted to their expected settlement value. If estimated future costs of AROs change,
an adjustment is recorded to both the ARO and the long-lived asset. Revisions to estimated AROs can result from changes in retirement
cost estimates, revisions to estimated inflation rates and changes in the estimated timing of abandonment. The following is a description
of the Company’s asset retirement obligations for the nine months ended September 30, 2017 and December 31, 2016:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Asset retirement obligations at beginning of period
|
|
$
|
—
|
|
|
$
|
—
|
|
Additions
|
|
|
2,302,500
|
|
|
|
—
|
|
Accretion expense
|
|
|
163,119
|
|
|
|
—
|
|
Asset retirement obligations at end of period
|
|
$
|
2,465,619
|
|
|
$
|
—
|
|
In
January 2017, the Company received subscriptions for 550,000 shares of common stock at $0.20 per share for total proceeds of $106,000.
On January 17, 2017, the Company issued 5,075,000 shares of common stock for stock subscriptions received during 2017 and 2016.
The
following table summarizes the continuity of the Company’s stock options:
|
|
Number of
options
|
|
|
Weighted
average
exercise price
|
|
|
Weighted
average
fair value
|
|
|
Aggregate
intrinsic
value
|
|
Outstanding, December 31, 2016
|
|
|
1,265,000
|
|
|
$
|
0.14
|
|
|
$
|
0.11
|
|
|
$
|
–
|
|
Granted
|
|
|
1,600,000
|
|
|
|
0.18
|
|
|
|
0.18
|
|
|
|
–
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
–
|
|
Expired
|
|
|
(250,000
|
)
|
|
|
0.22
|
|
|
|
0.19
|
|
|
|
–
|
|
Outstanding, September 30, 2017
|
|
|
2,615,000
|
|
|
$
|
0.16
|
|
|
$
|
0.15
|
|
|
$
|
91,350
|
|
Additional
information regarding stock options as of September 30, 2017, is as follows:
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Range of
exercise
prices
|
|
|
Number of
shares
|
|
|
Weighted
average
remaining
contractual life
(years)
|
|
|
Weighted
average
exercise price
|
|
|
Number of
shares
|
|
|
Weighted
average
exercise price
|
|
$
|
0.10
|
|
|
|
765,000
|
|
|
|
.9
|
|
|
$
|
0.10
|
|
|
|
765,000
|
|
|
$
|
0.10
|
|
$
|
0.14
|
|
|
|
150,000
|
|
|
|
0.5
|
|
|
$
|
0.14
|
|
|
|
150,000
|
|
|
$
|
0.14
|
|
$
|
0.18
|
|
|
|
1,500,000
|
|
|
|
3.4
|
|
|
$
|
0.18
|
|
|
|
1,500,000
|
|
|
$
|
0.18
|
|
$
|
0.19
|
|
|
|
100,000
|
|
|
|
2.7
|
|
|
$
|
0.19
|
|
|
|
100,000
|
|
|
$
|
0.19
|
|
|
|
|
|
|
2,515,000
|
|
|
|
1.7
|
|
|
$
|
0.16
|
|
|
|
2,515,000
|
|
|
$
|
0.16
|
|
The
fair values for stock options granted during the period have been estimated using the Black-Scholes option pricing model assuming
no expected dividends and the following weighted average assumptions:
|
|
2017
|
|
Risk-free interest rate
|
|
|
1.7
|
%
|
Expected life (in years)
|
|
|
3.9
|
|
Expected volatility
|
|
|
298
|
%
|
Dividend yield
|
|
|
0
|
%
|
The
fair value of stock options vested during the three months ended September 30, 2017 and 2016 was $23,787 and $0, respectively,
that was recorded as stock-based compensation and included in general and administrative expenses. The weighted average fair value
of stock options granted during the nine months ended September 30, 2017 was $0.18. At September 30, 2017, the Company had $257,820
in unrecognized compensation expense related to stock options that will be expensed through March 2021.
On
January 17, 2017, the Company issued 5,395,000 stock purchase warrants with an exercise price of $0.40 per share with an expiration
date of January 17, 2018.
On
March 27, 2017, the Company amended the expiration date on 5,500,000 of the 11,000,000 stock purchase warrants from August 27,
2017 to August 27, 2018. No other conditions of the warrants were amended. The Company recognized expense of approximately $279,000
related to the amendment of the warrants.
The
following table summarizes the share purchase warrants:
|
|
Number of
warrants
|
|
|
Weighted
average
exercise
price
|
|
|
Expire
|
|
Outstanding, December 31, 2016
|
|
|
11,000,000
|
|
|
$
|
0.20
|
|
|
|
2018
|
|
Issued
|
|
|
5,395,000
|
|
|
$
|
0.40
|
|
|
|
2018
|
|
Expired
|
|
|
(5,500,000
|
)
|
|
$
|
0.20
|
|
|
|
|
|
Outstanding, September 30, 2017
|
|
|
10,895,000
|
|
|
$
|
0.30
|
|
|
|
|
|
10.
|
Restricted
Stock Units
|
For
the three months ended September 30, 2017 and 2016, restricted stock expense recorded as stock-based compensation was $ nil and
$ 4,722, respectively, and capitalized stock based compensation was $8,214 and $12,339, respectively.
|
|
Number of
restricted
stock units
|
|
|
Weighted
average
fair value per
award
|
|
Balance, December 31, 2016
|
|
|
2,711,297
|
|
|
$
|
0.17
|
|
Granted
|
|
|
–
|
|
|
$
|
-
|
|
Vested
|
|
|
(887,422
|
)
|
|
|
0.25
|
|
Balance, September 30, 2017
|
|
|
1,823,875
|
|
|
$
|
0.13
|
|
At
September 30, 2017, unrecognized compensation expense related to RSUs totaled $54,066 that will be recognized over a weighted
average period of approximately eight months.
The
Company’s operations are in two geographic segments: Bulgaria and Turkey. Summarized financial information for our geographic
segments for the current period is shown in the following table:
Nine months ended September 30, 2017
|
|
Bulgaria
|
|
|
Turkey
|
|
|
Corporate Office
|
|
|
Total
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
2,676,279
|
|
|
$
|
-
|
|
|
$
|
2,676,279
|
|
Loss before other income (expenses)
|
|
|
(994
|
)
|
|
|
(1,135,184
|
)
|
|
|
(938,456
|
)
|
|
|
(2,074,634
|
)
|
Net loss
|
|
|
(994
|
)
|
|
|
(871,515
|
)
|
|
|
(1,011,099
|
)
|
|
|
(1,883,608
|
)
|
(1)
Includes approximately $279,000 of expense related to the amendment of warrants. See note 9.
The
Company is subject to United States federal and state income taxes at a rate of 34%. The reconciliation of the provision for income
taxes at the United States federal statutory rate compared to the Company’s income tax expense as reported is as follows:
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Benefit at statutory rate
|
|
$
|
(597,510
|
)
|
|
$
|
(1,292,488
|
)
|
Permanent differences and other:
|
|
|
-
|
|
|
|
-
|
|
Valuation allowance change
|
|
|
(597,510
|
)
|
|
|
(1,292,488
|
)
|
Income tax provision
|
|
$
|
–
|
|
|
$
|
–
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s
Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide readers
of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations,
liquidity, and certain other factors that may affect our future results. Our MD&A is presented in the following sections:
|
●
|
Executive
Summary
|
|
|
|
|
●
|
Results
of Operations
|
|
|
|
|
●
|
Liquidity
and Capital Resources
|
|
|
|
|
●
|
Recent
Accounting Pronouncements
|
|
|
|
|
●
|
Forward-Looking
Statements.
|
Our
MD&A should be read in conjunction with our unaudited financial statements of Park Place Energy Inc. (“Park Place”,
Company”, “we”, and “our”) and related Notes in Part I, Item 1 of the Quarterly Report on Form 10-Q
and Item 8, Financial Statements and Supplementary Data, of the Annual Report on Form 10-K for the year ended December 31, 2016.
Our
website can be found at www.parkplaceenergy.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K and amendments to those reports filed with or furnished to the U.S. Securities and Exchange Commission (“SEC”),
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”), can be accessed free of
charge by linking directly from our website under the “Investor Relations - SEC Filings” caption to the SEC’s
Edgar Database.
Executive
Summary
Park Place is an oil and gas exploration and production company
focused on expanding its portfolio of projects in Southeast Europe, Turkey and countries in the immediate vicinity. The Company’s
concentration is on recently acquired oil and gas producing assets in Turkey and a coal bed methane exploration license in Bulgaria.
Turkey
On
January 18, 2017, the Company completed the acquisition of three oil and gas producing fields in Turkey. The purchase price for
the acquisition of the PPE Turkey Companies from Tiway Oil B.V. was $2.1 million. The main producing asset is a 36.75% interest
in an offshore gas development project called the South Akçakoca Sub-Basin (SASB). This field has four offshore platforms
connected to an onshore gas plant. The other producing property acquired in Turkey is a 19.6% interest in the Cendere oil field
located in Southeast Turkey. See footnote 3 to the unaudited consolidated financial statement for the period ended September 30,
2017.
Bulgaria
The
Company entered into an exploration license over a 98,000 acre block in northeast Bulgaria in 2014. Following approval of our
planned overall five year and our first year work programs by the Ministry of Environment (“MEW”), the MEW approval
was appealed in an administrative proceeding. The administrative court remanded the matter to MEW in May 2017 for a determination
by the MEW as to whether an “ecological evaluation” of the license area should be required before the license goes
“effective”. It is noteworthy that the court ruled that our submitted overall five year and our first year work programs
fully complied with the applicable regulations.
Once
“effective”, the license will be for a term of five (5) years. Once MEW determines if we must first conduct an “ecological
evaluation” and that decision is final and not subject to any further appeals, we then will obtain the approval from the
Bulgarian energy agency and post a bond (105,000 Euros) at which point, the license will go “effective” and the 5
year license term will commence. The license period may be extended for up to 5 additional years and may then be converted into
an exploitation concession, which can last for up to 35 years. The Company’s initial 5 year commitment involves geological
and geophysical exploration activities for the first 3 years followed by drilling at least 10,000 meters (approximately 32,800
feet) of new wellbore in years 4 and 5.
The
license area holds great attraction as a potential coal bed methane exploration project. The license area was extensively drilled
for coal exploration from 1964 to 1990. It was determined that coal mining was not technically feasible. However, the coal exploration
drilling provided us with an extensive database.
Results
of Operations
The
following summary of our results of operations should be read in conjunction with our unaudited consolidated financial statements
for the periods ended September 30, 2017 and 2016, which are included herein.
Revenues
Revenue
increased to $2,676,279 for the nine months ended September 30, 2017 compared to nil for the nine months ending September 30,
2016. Revenue for the three months ending September 30, 2017 was $1,003,640 compared to nil for the three months ending September
30, 2016. Revenue increased due to the acquisition of Tiway during the period ended September 30, 2017.
Expenses
Production
costs increased to $2,345,931 for the nine months ended September 30, 2017 compared to nil for the nine months ending September
30, 2016. Production costs increased to $734,046 for the three months ended September 30, 2017 compared to nil for the three months
ending September 30, 2016.
Depletion
increased to $483,605 for the nine months ended September 30, 2017 compared to nil for the nine months ending September
30, 2016. Depletion increased to $237,122 for the three months ended September 30, 2017 compared to nil for the three months
ending September 30, 2016.
Accretion
of asset retirement obligation increased to $163,118 for the nine months ended September 30, 2017 compared to nil for the nine
months ending September 30, 2016. Accretion of asset retirement obligation increased to $60,137 for the three months ended September
30, 2017 compared to nil for the three months ending September 30, 2016.
These
increases in expenses were due to the acquisition of Tiway during the period ended September 30, 2017.
Our
general and administrative expenses for the nine months ended September 30, 2017 were $ 1,758,259 as compared to $3,803,323 for
the nine months ended September 30, 2016. Our general and administrative expenses for the three months ended September 30, 2017
decreased to $403,415 as compared to the three months ended September 30, 2016 from $3,520,369.
Other
Income (Expenses)
For
the nine months ended September 30, 2017, other income increased to $191,026 compared to $1,887 for the same period in
2016. This increase was primarily due to the bargain purchase of certain assets relating to the Tiway acquisition by the Company.
For the three months ended September 30, 2017, other expense increased to $21,072 compared to other income of $12 for the same
period in 2016.
Loss
For
the nine months ended September 30, 2017, net loss decreased to $1,883,608 compared to $3,801,436 for the same period in
2016. For the three months ended September 30, 2017, the net loss decreased to $452,152 compared to $3,520,381 for
the same period in 2016. The decrease in the net loss was a result of the factors described above.
Liquidity
and Capital Resources
The
following table summarizes our liquidity position:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
(Unaudited)
|
|
|
|
|
Cash
|
|
$
|
220,316
|
|
|
$
|
1,550,937
|
|
Working capital (deficit)
|
|
|
(1,261,595
|
)
|
|
|
805,133
|
|
Total assets
|
|
|
7,131,313
|
|
|
|
5,042,164
|
|
Total liabilities
|
|
|
4,783,924
|
|
|
|
1,256,749
|
|
Stockholders’ equity
|
|
|
2,347,389
|
|
|
|
3,785,415
|
|
Cash
Used in Operating Activities
We
incurred a net cash deficit of ($757,952) from operating activities for the nine months ended September 30, 2017 compared to $
(148,649) for the nine months ended September 30, 2016. The increase was due to Tiway acquisition.
Cash
Flow from Investing Activities
Net
cash used in investing activities for the nine months ended September 30, 2017 was $723,920 was primarily due to the Tiway acquisition.
Cash
Provided by Financing Activities
We
have funded our business to date primarily from sales of our common stock through private placements and loans. During the nine
months ended September 30, 2017, we received net cash of $138,153 for from loans and stock subscriptions received.
Future
Operating Requirements
Based
on our current plan of operations, we estimate that we will require approximately $3.2 million to pursue our plan of operations
over the next 12 months. We plan to spend approximately $800,000 on capital expenditures for ongoing redevelopment operations
on the Turkish properties. The operations in Turkey are self-sustaining and will generate net cash flow sufficient to fund half
of the capital expenditure requirement ($400,000) based on current projections as well as in-country general and administrative
expenses. Accordingly, an additional $400,000 will be needed for geological, geophysical and other work to de-risk future drilling
operations. To reduce our current outstanding trade payables and indebtedness will require approximately $1.4 million; however,
we may be able to negotiate terms that will require a lesser amount. We will use the balance of the funds required ($400,000)
to fund planning for future drilling operations and corporate general and administrative expenses. Our current plan of operations
in the period 12-24 months from now contemplates participation in the drilling of up to four (4) new wells at SASB. Depending
on the timing of the drilling operations at our current interest (currently 36.75%), we project we will require up to an additional
$6 million in capital expenditures to enable us to conduct such operations.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements.
Forward-Looking
Information
Certain
statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of applicable
U.S. securities legislation. Additionally, forward-looking statements may be made orally or in press releases, conferences, reports,
on our website or otherwise, in the future, by us or on our behalf. Such statements are generally identifiable by the terminology
used such as “plans,” “expects,” “estimates,” “budgets,” “intends,”
“anticipates,” “believes,” “projects,” “indicates,” “targets,” “objective,”
“could,” “should,” “may” or other similar words.
By
their very nature, forward-looking statements require us to make assumptions that may not materialize or that may not be accurate.
Forward-looking statements are subject to known and unknown risks and uncertainties and other factors that may cause actual results,
levels of activity and achievements to differ materially from those expressed or implied by such statements, including the factors
discussed under Item 1A. Risk Factors in our most recent Annual Report on Form 10-K. Such factors include, but are not limited
to, the following: fluctuations in and volatility of the market prices for oil and natural gas products; the ability to produce
and transport oil and natural gas; the results of exploration and development drilling and related activities; global economic
conditions, particularly in the countries in which we carry on business, especially economic slowdowns; actions by governmental
authorities including increases in taxes, legislative and regulatory initiatives related to fracture stimulation activities, changes
in environmental and other regulations, and renegotiations of contracts; political uncertainty, including actions by insurgent
groups or other conflicts; the negotiation and closing of material contracts; future capital requirements and the availability
of financing; estimates and economic assumptions used in connection with our acquisitions; risks associated with drilling, operating
and decommissioning wells; actions of third-party co-owners of interests in properties in which we also own an interest; our ability
to effectively integrate companies and properties that we acquire; our limited operating history; our history of operating losses;
our lack of insurance coverage; and the other factors discussed in other documents that we file with or furnish to the U.S. Securities
and Exchange Commission. The impact of any one factor on a particular forward-looking statement is not determinable with certainty
as such factors are interdependent upon other factors and our course of action would depend upon our assessment of the future,
considering all information then available. In that regard, any statements as to: future oil or natural gas production levels;
capital expenditures; the allocation of capital expenditures to exploration and development activities; sources of funding for
our capital expenditure programs; drilling of new wells; demand for oil and natural gas products; expenditures and allowances
relating to environmental matters; dates by which certain areas will be developed or will come on-stream; expected finding and
development costs; future production rates; ultimate recoverability of reserves, including the ability to convert probable and
possible reserves to proved reserves; dates by which transactions are expected to close; future cash flows, uses of cash flows,
collectability of receivables and availability of trade credit; expected operating costs; changes in any of the foregoing and
other statements using forward-looking terminology are forward-looking statements, and there can be no assurance that the expectations
conveyed by such forward-looking statements will, in fact, be realized.
Although
we believe that the expectations conveyed by the forward-looking statements are reasonable based on information available to us
on the date such forward-looking statements were made, no assurances can be given as to future results, levels of activity, achievements
or financial condition.
Readers
should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future
results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking
statements and from historical results, due to the risks and uncertainties described above, as well as others not now anticipated.
The foregoing statements are not exclusive and further information concerning us, including factors that potentially could materially
affect our financial results, may emerge from time to time. We do not intend to update forward-looking statements to reflect actual
results or changes in factors or assumptions affecting such forward-looking statements.