Notes
to Condensed Financial Statements
March
31, 2022
(Unaudited)
Note
1 – Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies
Unaudited
Interim Financial Information
American
Noble Gas, Inc., formerly Infinity Energy Resources, Inc., has prepared the accompanying condensed financial statements pursuant to the
rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These financial
statements are unaudited and, in our opinion, include all adjustments consisting of normal recurring adjustments and accruals necessary
for a fair presentation of our condensed balance sheets, statements of operations, statements of stockholders’ deficit and cash
flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be
expected for the remainder of 2022 due to various factors. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted
in accordance with the rules and regulations of the SEC. These condensed financial statements should be read in conjunction with the
audited financial statements and accompanying notes in Item 8, “Financial Statements and Supplementary Data,” of our Annual
Report on Form 10-K, filed with the SEC.
Name
change
At
the Annual Meeting of Stockholders held on October 13, 2021 the stockholders approved an amendment
to the Company’s Certificate of Incorporation, as amended, changing the Company’s name from Infinity Energy Resources, Inc.
to American Noble Gas Inc “AMGAS,” the “Company,” “we,” “us” and “our”
refers collectively to American Noble Gas Inc, (formerly Infinity Energy Resources, Inc.), its predecessors and subsidiaries or one or
more of them as the context may require.
Reincorporation
in Nevada
On
December 7, 2021, pursuant to an Agreement and Plan of Merger, American Noble Gas, Inc., a Delaware corporation, merged with and into
its wholly owned subsidiary, American Noble Gas Inc, a Nevada corporation (“AMGAS-Nevada” and/or the “Company”)
with AMGAS-Nevada continuing as the surviving corporation. In conjunction with the merger, AMGAS-Nevada succeeded to the assets, continued
the business and assumed the rights and obligations of the predecessor Delaware corporation existing immediately prior to the merger.
The merger was consummated by the filing of a certificate of merger on December 7, 2021 with the Secretary of State of the State of Delaware
and articles of merger with the Secretary of State of the State of Nevada. The Agreement and Plan of Merger and transactions contemplated
thereby were adopted by the holders of a majority of the outstanding shares of the predecessor company’s common stock, par value,
$0.0001 per share and/or Series A Convertible Preferred Stock, par value $0.0001 per share, on an as-converted common stock basis, by
written consent in lieu of a special meeting of stockholders, in accordance with the Delaware General Corporation Law.
Pursuant
to the Agreement and Plan of Merger, (i) each outstanding share of predecessor’s common stock automatically converted into one
share of common stock, par value $0.0001 per share, of AMGAS-Nevada, (ii) each outstanding share of the predecessor’s series A
convertible preferred stock automatically converted into one share of series A convertible preferred stock, par value $0.0001 per share
of AMGAS-Nevada, and (iii) each outstanding option, right or warrant to acquire shares of predecessor common stock converted into an
option, right or warrant to acquire an equal number of shares of AMGAS-Nevada common stock under the same terms and conditions as the
original options, rights or warrants.
Similar
to the shares of predecessor common stock prior to the merger, the shares of AMGAS-Nevada common stock are quoted on the OTCQB tier operated
by the OTC Markets Group Inc. under the symbol “IFNY”. In accordance with the Agreement and Plan of Merger, each outstanding
certificate previously representing shares of the predecessor’s common stock or series A preferred stock automatically represents,
without any action of the predecessor’s stockholders, the same number of shares of AMGAS-Nevada common stock or series A preferred
stock, as applicable.
Pursuant
to the Agreement and Plan of Merger, the directors and officers of the predecessor company immediately prior to the merger became the
directors and officers of AMGAS-Nevada and continued their respective directorship or services with the Company on the same terms as
their respective directorship or service with the predecessor registrant immediately prior to the merger.
As
a result of the merger, the internal affairs of the Company ceased to be subject to the Delaware General Corporation Law or governed
by the predecessor’s Delaware Certificate of Incorporation, as amended and its bylaws. As of the December 7, 2021 merger date,
the Company is now subject to the Nevada Revised Statutes and is governed by the Company’s Articles of Incorporation and Bylaws
as filed in the State of Nevada.
Quotation
of Common Stock on OTCQB
Effective
July 13, 2021, the Company’s Common Stock was approved for quotation on the OTCQB® Venture Market under the symbol
“IFNY.”
Nature
of Operations
Since
2009, we had planned to pursue the exploration of potential oil and gas resources in the United States and in the Perlas and Tyra concession
blocks offshore Nicaragua in the Caribbean Sea (the “Nicaraguan Concessions” or “Concessions”), which contain
a total of approximately 1.4 million acres. Civil unrest within Nicaragua and difficulties encountered with negotiations on extensions
and the issuance of permits to drill with the Nicaraguan government made the exploration and development of the underlying concessions
problematic. In addition, the Company was in technical default of the certain terms of the Nicaraguan Concession and the Nicaraguan government
terminated both of the underlying Concessions. As a result, the Company abandoned all of its efforts to explore and develop the Nicaraguan
Concessions effective January 1, 2020.
We
sold our wholly-owned subsidiary, Infinity Oil and Gas of Texas, Inc. (“Infinity Texas”) in 2012 and its wholly-owned subsidiary,
Infinity Oil and Gas of Wyoming, Inc. (“Infinity Wyoming”), was administratively dissolved in 2009.
Subsequent
to the termination of the Nicaraguan Concessions, we began assessing various opportunities and strategic alternatives involving the acquisition,
exploration and development of gas and oil properties in the United States, including the possibility of acquiring businesses or assets
that provide support services for the production of oil and gas in the United States. As a result, on July 31, 2019, we acquired an option
(the “Option”) from Core Energy, LLC, a closely held company (“Core”), to purchase the production and mineral
rights/leasehold for oil and gas properties, subject to overriding royalties to third parties, in the Central Kansas Uplift geological
formation covering over 11,000
contiguous acres (the “Properties”).
We paid a non-refundable deposit of $50,000
to bind the Option, which provided us the right
to acquire the Properties for $2.5
million prior to December 31, 2019. The Company
was not able to exercise the Option prior to December 31, 2019. On September 2, 2020, the Company acquired a new Option from Core under
similar terms as the previous Option, however the newly acquired Option permitted the Company to purchase the Properties at a reduced
price of $900,000
at any time prior to November 1, 2020 and the
Company agreed to immediately conduct a capital raise of between approximately $2-10
million to fund its acquisition and development
of the Properties. On December 14, 2020 the parties executed an Asset Purchase and Sale Agreement which extended the new Option to January
11, 2021, which expired.
We,
Core, and Seller entered into the Side Letters on September 2, 2020 and March 31, 2021, pursuant to which we and Core agreed to set the
closing date of the acquisition of the Properties under the Asset Purchase Agreement to April 1, 2021. Pursuant to the Side Letters,
the Company is responsible for reimbursing Core for certain prorated revenues and expenses from January 1, 2021 through April 1, 2021.
On
April 1, 2021 we completed the acquisition of the Properties, under the same terms of the Asset Purchase Agreement which provided a purchase
price of $900,000. The Company raised approximately $2.05 million on March 26, 2021 through the issuance of Convertible Preferred Stock
with detachable common stock purchase warrants. The funds raised pursuant to the Convertible Preferred Stock issuance were used to complete
the acquisition of the Properties on April 1, 2021 and to retire all outstanding Convertible Notes Payable.
The purchase of the Properties included the existing production equipment, infrastructure and ownership of 11 square miles of existing 3-D seismic data on the acreage. The Properties include a horizontal producing well, horizontal saltwater injection well, conventional saltwater disposal well and two conventional vertical producing wells, which currently produce from the Reagan Sand Zone with an approximate depth of 3,600 feet.
We
commenced rework of the existing production wells after completion of the acquisition of the Properties and have performed testing and
evaluation of the existence of noble gas reserves on the Properties including helium, argon and other rare earth minerals/gases. Testing
of the Properties for noble gas reserves has provided encouraging but not conclusive results and the Company has yet to determine the
possibility of commercializing the noble gas reserves on the Properties. The Company plans to assess the Properties existing oil and
gas reserves while continuing the evaluation of the existence of new oil and gas zones and other mineral reserves and specifically the
noble gas reserves that the Properties may hold.
On
April 4, 2022, the Company acquired a 40% participation in a Farmout Agreement by and between Sunflower Exploration, LLC as the Farmee
and Scout Energy Partners as Farmor with regards to its oil and gas interests in the Hugoton Gas Field, located in Haskell and Finney
Counties, Kansas. AMGAS has joined three other parties to explore for and develop potential oil, natural gas, noble gases and brine minerals
on the properties underlying the Farmout Agreement (collectively the “Hugoton JV”) .
The
Farmout Agreement covers drilling and completion of up to 50 wells, with the first exploratory well spudded on April 28,
2022. The Hugoton JV will utilize Scout’s existing infrastructure assets including water disposal, gas gathering and helium processing.
The Farmout Agreement provides the Hugoton JV with rights to take in-kind and market its share of helium at the tailgate of Jayhawk Gas
Plant, which will enable the Hugoton JV to market and sell the helium produced at prevailing market prices.
The
Hugoton JV also acquired the right to all brine minerals subject to a ten percent (10%) royalty to Scout, across Finney and Haskell Counties.
Brine minerals are harvested from the formation water produced from active, and to be drilled, oil and gas wells and may include a variety
of dissolved minerals including bromine and iodine. The Hugoton JV plans to target brine minerals with commercial quantities of bromine
and iodine. AMGAS through the Hugoton JV is currently developing proprietary technology to recover brine minerals, particularly with
respect to bromine, which is well underway and has demonstrated recovery efficiency and is expected to be available for use in existing
and future development wells.
The
first exploratory well commenced on May 7, 2022 near Garden City, Kansas with a goal to evaluate its unconventional theory
of where substantial oil, natural gas and noble gases may be present in the Hugoton Gas Field. The Hugoton JV believes that its unconventional
theory has not previously been targeted for exploration by historical operations in the field.
The
exploration and development activity will be directed and coordinated under the terms of the USNG Letter Agreement entered in November
2021 with input from the newly formed Advisory Board of directors whose members all have extensive experience in developing shale resources
and noble gas and rare earth mineral reserves.
We
may find it necessary to obtain new sources of debt and/or equity capital to fund the exploration and development of the Properties enumerated
above, as well as satisfying our existing debt obligations. We can provide no assurance that we will be able to obtain sufficient new
debt/equity capital to fund our planned development of the Properties.
COVID–19
Pandemic
The
financial statements contained in this Quarterly Report on Form 10-Q as well as the description of our business contained
herein, unless otherwise indicated, principally reflect the status of our business and the results of our operations as of March
31, 2022. Economies throughout the world continue to suffer disruptions by the effects of the quarantines, business closures and
the reluctance of individuals to leave their homes as a result of the outbreak of the coronavirus (COVID-19) including the recent rise
of the new Omicron variant. In particular, the oil and gas market has been severely impacted by the negative effects of the coronavirus
because of the substantial and abrupt decrease in the demand for oil and gas globally followed by the recent resurgence in oil and natural
gas prices. In addition, the capital markets have experienced periods of disruption and our efforts to raise necessary capital in the
future may be adversely impacted by the pandemic and investor sentiment and we cannot forecast with any certainty when the lingering
uncertainty caused by the COVID-19 pandemic will cease to impact our business and the results of our operations. In reading this Quarterly
Report on Form 10-Q, including our discussion of our ability to continue as a going concern set forth herein, in each case,
consider the additional uncertainties caused by the outbreak of COVID-19.
Going
Concern
The
Company has incurred losses from operations, has a net stockholders’ deficit, incurred net cash used in operating activities and
has a significant working capital deficit as of and for the three months ended March 31, 2022 and for the year ended December
31, 2021. The Company must raise substantial amounts of debt and equity capital from other sources in the future in order to fund the
(i) development of the Properties acquired on April 1, 2021; (ii) funding our obligations for exploration and development under the Hugoton
Farmout Agreement (see Note 14); (iii) normal day-to-day operations and corporate overhead; and (iv) outstanding debt and other financial
obligations as they become due, as described below. These are substantial operational and financial issues that must be successfully
addressed during 2022 and beyond.
The
Company has made substantial progress in resolving many of its existing financial obligations during the three months ended March
31, 2022 and for the year ended December 31, 2021.
The
Company will have significant financial commitments to execute its planned exploration and development of the Properties and the Hugoton
Gas Field. The Company may find it necessary to raise substantial amounts of debt or equity capital to fund such exploration and development
activities and may seek offers from industry operators and other third parties for interests in the Properties in exchange for cash and
a carried interest in exploration and development operations or other joint venture arrangement. There can be no assurance that it will
be able to obtain such new funding or be able to reach agreements with industry operators and other third parties or on what terms.
Due
to the uncertainties related to the foregoing matters, there exists substantial doubt about the Company’s ability to continue as
a going concern within one year after the date the financials are issued. The unaudited condensed financial statements do not
include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification
of liabilities that might result should the Company be unable to continue as a going concern.
Revenue
Recognition
On
January 1, 2018, the Company adopted ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” and the
series of related accounting standard updates that followed, using the modified retrospective method of adoption. Adoption of the ASU
did not require an adjustment to the opening balance of equity and did not change the Company’s amount and timing of revenues.
The
Company’s revenues are primarily derived from its interests in the sale of oil and natural gas production. To date, such revenues
have only included the sale of oil however the Company expects to begin generating revenues from the sale of natural gas and noble gases
in the future. The Company recognizes revenue from its interests in the sales of oil and gas in the period that its performance obligations
are satisfied. Performance obligations are satisfied when the customer obtains control of product, when the Company has no further obligations
to perform related to the sale, when the transaction price has been determined and when collectability is probable. The sales of oil
and gas are made under contracts which the third-party operators of the wells have negotiated with customers, which typically include
variable consideration that is based on pricing tied to local indices and volumes delivered in the current month. The Company receives
payment from the sale of oil and gas production from one to three months after delivery. At the end of each month when the performance
obligation is satisfied, the variable consideration can be reasonably estimated and amounts due from customers are accrued in trade receivables,
net in the balance sheets. Variances between the Company’s estimated revenue and actual payments are recorded in the month the
payment is received, however, differences have been and are insignificant. The Company’s oil is typically sold at delivery points
under contracts terms that are common in our industry.
Convertible
Instruments
In
August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives
and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)” which is intended to reduce complexity in applying
GAAP to certain financial instruments with characteristics of liabilities and equity. The guidance in ASU 2020-06 simplifies the accounting
for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion
and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately
from the host convertible debt or preferred stock. The guidance in ASC 470-20 applies to convertible instruments for which the embedded
conversion features are not required to be bifurcated from the host contract and accounted for as derivatives. In addition, the amendments
revise the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that
are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required
for equity classification. These amendments are expected to result in more freestanding financial instruments qualifying for equity classification
(and, therefore, not accounted for as derivatives), as well as fewer embedded features requiring separate accounting from the host contract.
The amendments in ASU 2020-06 further revise the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings
per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for
purposes of calculating diluted EPS when an instrument may be settled in cash or shares.
The
amendments in ASU 2020-06 are effective for public entities that meet the definition of an SEC filer, excluding smaller reporting companies
as defined by the SEC, for fiscal years beginning after December 15, 2021. For all other entities, the amendments are effective for fiscal
years beginning after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020.
The
Company early adopted ASU 2020-06 effective January 1, 2021 and has applied its effects to the 3% Convertible Promissory Notes issued
on March 31, 2021 and the 8% Convertible Promissory Note issued on August 30, 2021(See Note 3). The Company elected to adopt ASU 2020-06
using the modified retrospective method which enables entities to apply the transition requirements in this ASU at the effective date
of ASU 2020-06 (rather than as of the earliest comparative period presented) with the effect of initially adopting ASU 2020-06 recognized
as a cumulative-effect adjustment to retained earnings (accumulated deficit) on the first day of the period adopted. Therefore, this
transition method applies the amendments in ASU 2020-06 to outstanding financial instruments as of the beginning of the fiscal year of
adoption (January 1, 2021), with the cumulative effect of the change recognized as an adjustment to the opening balance of retained earnings
(accumulated deficit) as of the date of adoption. In accordance with the modified retrospective method, no adjustment was made to the
comparative-period information including earnings (loss) per share.
The
Company applied ASU-2020-06 to all outstanding financial instruments as of January 1, 2021, (the date of adoption of ASU 2020-06). The
convertible notes payable issued on August 19, 2020 was the only outstanding financial instrument effected by this new accounting standard
as of January 1, 2021. Therefore the application of ASU-2020-06 to this convertible note payable was used to determine the cumulative
effect of the adoption of the new accounting standard. The cumulative effect of the adoption of the new accounting standard was determined
and recognized as an adjustment to the opening balance of retained earnings (accumulated deficit) which resulted in an increase to the
carrying value of convertible notes payable as of January 1, 2021 by $160,900, a decrease to additional paid in capital of $252,961 and
a decrease to accumulated deficit of $92,061. See Note 3.
Prior
to the adoption of ASU 2020-06, the Company applied the existing accounting standards for derivatives and hedging and for distinguishing
liabilities from equity when accounting for hybrid contracts that feature conversion options. The accounting standards require companies
to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according
to certain criteria. The criteria includes circumstances in which (i) 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, (ii) 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 (iii) a separate instrument
with the same terms as the embedded derivative instrument would be considered a derivative instrument. The derivative is subsequently
marked to market at each reporting date based on current fair value, with the changes in fair value reported in results of operations.
Conversion
options that contain variable settlement features such as provisions to adjust the conversion price upon subsequent issuances of equity
or equity linked securities at exercise prices more favorable than that featured in the hybrid contract generally result in their bifurcation
from the host instrument.
Management
Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles in the United States 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 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 gas reserves; depreciation, depletion and amortization of proved oil and gas properties;
future cash flows from oil and gas properties; impairment of long-lived assets; fair value of derivatives; fair value of equity compensation;
warrants issued in connection with convertible debt; the realization of deferred tax assets; fair values of assets acquired and
liabilities assumed in business combinations.
Oil
and gas properties
On
April 1, 2021 we completed the acquisition of the Properties, under the terms of the Asset Purchase Agreement which provided a purchase price of $900,000. The purchase of the Properties included the existing production equipment, infrastructure and ownership of 11 square miles of existing 3-D seismic data on the acreage. The Properties include a horizontal producing well, horizontal saltwater injection well, conventional saltwater disposal well and two conventional vertical producing wells, which currently produce from the Reagan Sand Zone with an approximate depth of 3,600 feet.
The Company has performed workovers of the wells
subsequent to the Properties purchase which was necessary to put the lease back into production status. Therefore, these tangible and
intangible workover costs were expensed as lease operating expenses rather than capitalized in the full cost pool through March
31, 2022. In addition, the Company is currently evaluating the Properties for oil and gas reserves and specifically the potential
for noble gas reserves such as helium, argon and krypton. Based on these evaluations, the Company may redirect its efforts to the production
of noble gases rather than crude oil on the Properties. These noble gas evaluation costs have also been expensed as lease operating costs
through March 31, 2022.
The accounting for, and
disclosure of, oil and gas producing activities require that we choose between two GAAP alternatives: the full cost method or the successful
efforts method. We adopted and use the full cost method of accounting, which involves capitalizing all exploration, exploitation, development
and acquisition costs. Once we incur costs, they are recorded in the depletable pool of proved properties or in unproved properties,
collectively, the full cost pool. Our unproved property costs, which include unproved oil and gas properties, properties under development,
and major development projects, which were zero through March 31, 2022, and are not subject to depletion. We review our unproved
oil and gas property costs on a quarterly basis to assess for impairment and transfer unproved costs to proved properties as a result
of extensions or discoveries from drilling operations or determination that no proved reserves are attributable to such costs. We expect
these costs to be evaluated in one to seven years and transferred to the depletable portion of the full cost pool during that time. The
full cost pool is comprised of intangible drilling costs, lease and well equipment and exploration and development costs incurred plus
acquired proved and unproved leaseholds.
When
we acquire significant amounts of undeveloped acreage, we capitalize interest on the acquisition costs in accordance with FASB ASC Subtopic
835-20 for Capitalization of Interest. We capitalize interest upon identification and development of shale resource opportunities in
the Haynesville and Marcellus areas. When the unproved property costs are moved to proved developed and undeveloped oil and gas properties,
or the properties are sold, we cease capitalizing interest.
Capitalized
costs to acquire oil and natural gas properties are depreciated and depleted on a units-of-production basis based on estimated proved
reserves. Capitalized costs of exploratory wells and development costs are depreciated and depleted on a units-of-production basis based
on estimated proved developed reserves. Under this method, the sum of the full cost pool, excluding the book value of unproved properties,
and all estimated future development costs are divided by the total estimated quantities of proved reserves. This rate is applied to
our total production for the quarter, and the appropriate expense is recorded. Support equipment and other property, plant and equipment
related to oil and gas producing activities, as well as property, plant and equipment unrelated to oil and gas producing activities,
are recorded at cost and depreciated on a straight-line basis over the estimated useful lives of the assets.
Sales,
dispositions and other oil and gas property retirements are accounted for as adjustments to the full cost pool, with no recognition of
gain or loss, unless the disposition would significantly alter the amortization rate and/or the relationship between capitalized costs
and Proved Reserves.
Pursuant
to Rule 4-10(c)(4) of Regulation S-X, at the end of each quarterly period, companies that use the full cost method of accounting for
their oil and gas properties must compute a limitation on capitalized costs, or ceiling test. The ceiling test involves comparing the
net book value of the full cost pool, after taxes, to the full cost ceiling limitation defined below. In the event the full cost ceiling
is less than the full cost pool, we must record a ceiling test write-down of our oil and gas properties to the value of the full cost
ceiling. The full cost ceiling limitation is computed as the sum of the present value of estimated future net revenues from our proved
reserves by applying average prices as prescribed by the SEC Release No. 33-8995, less estimated future expenditures (based on current
costs) to develop and produce the proved reserves, discounted at 10%, plus the cost of properties not being amortized and the lower of
cost or estimated fair value of unproved properties included in the costs being amortized, net of income tax effects.
The
ceiling test is computed using the simple average spot price for the trailing twelve-month period using the first day of each month.
The trailing twelve-month reference price was $67.99
per barrel for the West Texas Intermediate oil
at Cushing, Oklahoma through December 31, 2021. This reference price for oil is further adjusted for quality factors and regional
differentials to derive estimated future net revenues. Under full cost accounting rules, any ceiling test write-downs of oil and gas
properties may not be reversed in subsequent periods. There were no ceiling test write-downs through March 31, 2022.
The
ceiling test calculation is based upon estimates of proved reserves. There are numerous uncertainties inherent in estimating quantities
of proved reserves, in projecting the future rates of production and in the timing of development activities. The accuracy of any reserve
estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling,
testing and production subsequent to the date of the estimate may justify revision of such estimate. Accordingly, reserve estimates are
often different from the quantities of oil and gas that are ultimately recovered.
Issuance
of Debt Instruments With Detachable Stock Purchase Warrants
Proceeds
from the issuance of a debt instrument with stock purchase warrants (detachable call options) are allocated to the two elements based
on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion
of the proceeds so allocated to the warrants are recorded as additional paid-in capital. The remainder of the proceeds are allocated
to the debt instrument portion of the transaction. Such issuances generally result in a discount (or, occasionally, a reduced premium)
relative to the debt instrument, which is amortized to interest expense using the effective interest rate method.
Asset
Retirement Obligations
The
Company records estimated future asset retirement obligations pursuant to the provisions of ASC 410. ASC 410 requires entities to record
the fair value of a liability for an asset retirement obligation in the period in which it is incurred with a corresponding increase
in the carrying amount of the related long-lived asset. Subsequent to initial measurement, the asset retirement liability is required
to be accreted each period. The Company’s asset retirement obligations consist of costs related to the plugging of wells, the removal
of facilities and equipment, and site restoration on oil and gas properties.
During
April 2021, the Company acquired the Kansas Properties and assumed the related asset retirement obligation existing at the date of acquisition.
The asset retirement obligation assumed for the Kansas Properties relates to the plug and abandonment costs when the wells acquired are
no longer useful. The Company determined the value of the liability by obtaining quotes for this service and estimated the increased
costs that the Company will face in the future. We then discounted the future value based on an intrinsic interest rate that is appropriate
for us. If costs rise more than what we have expected there could be additional charges in the future, however, we monitor the costs
of the abandoned wells and we will adjust this liability if necessary.
As
of December 31, 2021, the Company had divested all of its domestic oil properties that contained operating and abandoned wells in Texas,
Colorado and Wyoming. The Company may have obligations related to the divestiture of certain abandoned non-producing domestic leasehold
properties should the new owner not perform its obligations to reclaim abandoned wells in a timely manner. Management believes the Company
has been relieved from asset retirement obligation related to Infinity-Texas because of the sale of its Texas oil and gas properties
in 2011 and its sale of 100% of the stock in Infinity-Texas in 2012. The Company has recognized an additional liability of $734,897 related
to its former Texas oil and gas producing properties (included in asset retirement obligations) to recognize the potential personal liability
of the Company and its officers for the Infinity-Texas oil and gas properties should the new owner not perform its obligations to reclaim
abandoned wells in a timely manner. In addition, management believes the Company has been relieved from asset retirement obligations
related to Infinity-Wyoming because of the sale of its Wyoming and Colorado oil and gas properties in 2008; however, the Company has
recognized since 2012 an additional liability of $981,106 related to its former Wyoming and Colorado oil and gas producing properties
(included in asset retirement obligations) to recognize the potential liability of the Company and its officers should the new owner
not perform its obligations to reclaim abandoned wells in a timely manner.
Stock-based
compensation
The
Company applies ASC 718, Stock Compensation, which requires companies to recognize compensation expense for share-based payments
based on the estimated fair value of the awards. ASC 718 also requires tax benefits relating to the deductibility of increases in the
value of equity instruments issued under share-based compensation arrangements to be presented as financing cash inflows in the statement
of cash flows. Compensation cost is recognized based on the grant-date fair value for all share-based payments granted and is estimated
in accordance with the provisions of ASC 718.
Basic
and Diluted Income (Loss) Per Share
Net
income (loss) per share is calculated in accordance with FASB ASC 260, Earnings Per Share, for the periods presented. Basic net loss
per share is based upon the weighted average number of shares of Common Stock outstanding. Diluted net earnings (loss) per share is based
on the assumption that all dilutive convertible shares, warrants and stock options were converted or exercised or excluded from the calculations
if their inclusion would be antidilutive. Dilution is computed by applying the if-converted/treasury stock method. Under this method,
options and warrants are assumed exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase shares of Common Stock at the average market price during the period. The Company has outstanding convertible
promissory notes payable and Convertible Preferred Stock both of which is potentially dilutive. Such potential dilutive effect is included
in diluted earnings (loss) per share at the beginning of the period (or at the time of issuance, if later) if they have a dilutive effect
or such potentially dilutive securities are excluded from the calculations if their inclusion would be antidilutive.
The
Company has outstanding convertible promissory notes payable and convertible preferred stock both of which is potentially dilutive. The
adoption of ASU 2020-06 requires the Company to assume share settlement when an instrument can be settled in cash or shares at the entity’s
option. This applies both to convertible instruments and freestanding arrangements that could result in cash or share settlement. ASU
2020-06 also stipulates that an average market price for the period should be used in the computation of the diluted earnings (loss)
per share denominator in cases when the exercise price of an instrument may change based on an entity’s share price or changes
in the entity’s share price may affect the number of shares that would be used to settle a financial instrument. Lastly, an entity
should use the weighted-average share count from each quarter when calculating the year-to-date weighted average share count for all
potentially dilutive securities.
During
the three months ended March 31, 2022 and 2021, the Company had outstanding the following securities that were potentially dilutive;
1) Series A Convertible Preferred Stock, 2) Convertible Note Payable through its retirement on March 26, 2021, 3) 3%
Convertible Promissory Notes issued on March 31, 2021, 4) 8%
Convertible Promissory Note issued on August 30, 2021, 5) 8%
Convertible Promissory Notes issued on October 29, 2021, 6) Warrants to purchase common stock and 7) options to purchase common stock.
All potentially dilutive securities were excluded from the calculation of diluted income (loss) per share for the
three months ended March 31, 2022 and 2021 as all were considered anti-dilutive because of the net loss reported
for the three months ended March 31, 2022 and 2021.
Gain
on Extinguishment of Liabilities / Troubled Debt Restructuring:
In
accordance with ASC 470, the Company assesses restructuring of debt as troubled debt restructuring if the creditor for economic or legal
reasons related to the debtor’s financial difficulties grant a concession to the debtor that it would not otherwise consider. The
Company records a gain on restructuring of payables when it transfers its assets to a creditor to fully settle a payable. The gain is
measured by the excess of the carrying amount of the payable over the fair value of the assets transferred or fair value of equity interest
granted.
Recent
Accounting Pronouncements
Reference
Rate Reform. - In March 2020, the Financial Accounting Standard Board (the “FASB”) issued an accounting standard update
which provides optional expedients and expectations for applying GAAP to contracts, hedging relationships and other transactions to ease
financial reporting burdens to the expected market transition from the London Interbank Offered Rate (“LIBOR”) or another
reference rate to alternative reference rates. The amendments in this accounting standards update became effective March 12, 2020, and
an entity may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact this
guidance may have on the Company’s financial statements.
Income
Taxes – Simplifying the Accounting for Income Taxes. In December 2019, the FASB issued an accounting standard update which
simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. This accounting standards
update removes the following exceptions: (i) exception to the incremental approach for intraperiod tax allocation when there is a loss
from continuing operations and income or a gain from other items; (ii) exception to the requirements to recognize a deferred tax liability
for equity method investments when a foreign subsidiary becomes an equity method investment; (iii) exception to the ability not to recognize
a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and (iv) exception to
the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the
year. The amendments in the accounting standards update also improve consistency and simplify other areas of Topic 740 by clarifying
and amending existing guidance. The guidance became effective for interim and annual periods beginning after December 15, 2020, with
early adoption permitted. The Company adopted the guidance effective January 1, 2021, with all of the anticipated and applicable effects
to be required on a prospective basis. The adoption of this guidance did not have a material impact on our consolidated financial statements.
Other
accounting standards that have been issued by the FASB or other standards-setting bodies are not expected to have a material impact on
the Company’s financial position, results of operations and cash flows.
Note
2 – Oil and Gas Properties Acquired
Oil
and gas properties and equipment is comprised of the following at March 31, 2022 and December 31, 2021:
Schedule of Oil and Gas Properties and Equipment
| |
March 31, 2022 | | |
December 31,2021 | |
Oil and gas production equipment | |
$ | 913,425 | | |
$ | 913,425 | |
Proven developed and undeveloped oil and gas properties | |
| 9,134 | | |
| — | |
Subtotal | |
| 922,559 | | |
| 913,425 | |
Less: Accumulated depreciation, depletion and amortization | |
| (123,336 | ) | |
| (92,502 | ) |
Oil and gas properties and equipment, net | |
$ | 799,223 | | |
$ | 820,923 | |
On
April 1, 2021, the Company completed the previously announced acquisition of certain oil and gas properties and interests from Core Energy,
LLC, effective as of January 1, 2021 (the “Oil and Gas Properties Acquisition”). On December 14, 2020, the Company
entered into an asset purchase and sale agreement (the “Agreement”) with Core Energy, as well as all of the members of Core,
Mandalay LLC and Coal Creek Energy, LLC, to purchase certain oil and gas properties in the Central Kansas Uplift geological formation,
covering over 11,000
contiguous acres, including, among other things,
the production and mineral rights to and a leasehold interest in the Oil and Gas Properties and all contracts, agreements and
instruments. The Agreement provided for an aggregate purchase price consisting of $900,000
in cash at closing.
The
following represents the purchase price allocation for the Oil and Gas Properties Acquisition for $900,000
in cash. The Oil and Gas Property Acquisition
qualify as an asset acquisition. As such, AMGAS recognized the assets acquired and liabilities assumed at their fair values as of April
1, 2021, the date of closing. The fair value of the Oil and Gas Properties acquired approximate the value of the consideration
paid, and the asset retirement obligation to be assumed, which management has concluded approximates the fair value that would be paid
by a typical market participant. As a result, neither goodwill nor a bargain purchase gain will be recognized related to the acquisition.
The
Company determined the amount of the asset retirement obligation assumed to be $13,425 as of the date of acquisition. The obligation
relates to legal requirements associated with the retirement of long-lived assets that result from the acquisitions, construction, development,
or normal use of the asset. The obligation relates primarily to the requirement to plug and abandon oil and natural gas wells and support
wells at the conclusion of their useful lives.
The
following table summarizes the allocation of the assets acquired and the liabilities assumed related to the Oil and Gas Properties:
Schedule of Oil and Gas Properties Acquired
| |
Amount | |
Oil and gas properties, subject to depreciation, depletion and amortization | |
$ | 913,425 | |
Asset retirement obligation assumed | |
| (13,425 | ) |
Total purchase price of the Oil and Gas Properties | |
$ | 900,000 | |
Note
3 – Debt Obligations
Debt
obligations is comprised of the following at March 31, 2022 and December 31, 2021:
Schedule of Debt Outstanding
| |
March 31, 2022 | | |
December 31, 2021 | |
Notes payable: | |
| | | |
| | |
| |
| | | |
| | |
| |
$ | 28,665 | | |
$ | 28,665 | |
3% Convertible promissory notes payable | |
$ | 28,665 | | |
$ | 28,665 | |
8% Convertible promissory notes payable (less discount of $193,059 and $273,726 as of March 31, 2022 and December 31, 2021, respectively) | |
| 456,941 | | |
| 376,274 | |
| |
| | | |
| | |
Total notes payable | |
| 485,606 | | |
| 404,939 | |
Less: Long-term portion | |
| 28,665 | | |
| 28,665 | |
Notes payable, short-term | |
$ | 456,941 | | |
$ | 376,274 | |
Debt
obligations become due and payable as follows:
Schedule of Debt Obligations Maturities
Years ended | |
Principal balance due | |
| |
| |
2022 | |
$ | 456,941 | |
2023 | |
| — | |
2024 | |
| — | |
2025 | |
| — | |
2026 | |
| 28,665 | |
2027 | |
| — | |
Total | |
$ | 485,606 | |
3%
Convertible Promissory Notes Payable
On
March 31, 2021, the Company entered into Debt Settlement Agreements with six creditors (five of which were related parties) which extinguished
accounts payable and accrued liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of 3% Convertible
Promissory Notes (the “3% Notes”) with detachable warrants to purchase 5,732,994 shares of Common Stock for $0.50 per share.
The 3% Notes allow for prepayment at any time with all principal and accrued interest becoming due and payable at maturity on March 30,
2026 (“Maturity Date”). The 3% Notes are convertible as to principal and any accrued interest, at the option of the holder,
into shares of the Company’s Common Stock at any time after the issue date and prior to the close of business on the business day
preceding the Maturity Date at the rate of fifty cents ($0.50) per share, subject to normal and customary adjustment.
An
aggregate of $2,577,727 of the total accounts payable and accrued liabilities that were extinguished were with five related parties.
Such related parties were issued $25,777 principal balance of the 3% Convertible Promissory Notes and warrants to purchase 5,155,454
shares of Common Stock in exchange for the extinguishment of their respective debt obligations. See Note 10.
8%
Convertible Promissory Notes Payable
On
August 30, 2021, the Company and an accredited investor (the “8% Note Investor”) agreed whereby the Company issued an unsecured
convertible note due October
29, 2022 (the “8% Note”), with an
aggregate principal face amount of approximately $100,000.
The 8% Note is, subject to certain conditions, convertible into an aggregate of 200,000
shares of Common Stock, at a price of $0.50
per share. The Company also issued a five and
one half-year common stock purchase warrant to purchase up to 200,000
shares of Common Stock at an exercise price of
$0.50
per share, subject to customary adjustments (the
“8% Note Warrants”) which are immediately exercisable. The 8% Note Investor purchased the 8% Note and 8% Note Warrant from
the Company for an aggregate purchase price of $100,000
and the proceeds were used for general working
capital purposes. The Company also granted the 8% Note Investor certain piggy-back registration rights whereby the Company has agreed
to register for resale the shares underlying the 8% Note Warrant and the conversion of the 8% Note unless the shares of the Company commences
to trade on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York
Stock Exchange, within one hundred twenty (120) days after the Closing Date.
On
October 29, 2021, the Company and three accredited investors (the “October 8% Note Investors”) agreed whereby the Company
issued an unsecured convertible note due October 29, 2022 (the “October 8% Note”), with an aggregate principal face amount
of approximately $550,000. The October 8% Notes are, subject to certain conditions, convertible into an aggregate of 1,100,000 shares
of Common Stock, at a price of $0.50 per share. The Company also issued five and one half-year common stock purchase warrants to purchase
up to 1,650,000 shares of Common Stock at an exercise price of $0.50 per share, subject to customary adjustments (the “October
8% Note Warrants”) which are immediately exercisable. The October 8% Note Investors purchased the October 8% Notes and October
8% Note Warrants from the Company for an aggregate purchase price of $550,000 and the proceeds were used for general working capital
purposes. The Company also granted the October 8% Note Investors certain piggy-back registration rights whereby the Company has agreed
to register for resale the shares underlying the October 8% Note Warrants and the conversion of the October 8% Notes unless the shares
of the Company commences to trade on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global
Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the Closing
Date.
The
8% Note and the October 8% Notes all bear interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in cash in full
or in part by the Company at any time in an amount equal to 120% of the principal amount of the underlying notes and any accrued and
unpaid interest. Fifty percent (50%) of the 8% Note and the October 8% Notes shall be mandatorily repaid in cash in an amount equal to
120% of the principal amount of the underlying notes and any accrued and unpaid interest in the event of the consummation by the Company
of any public or private offering or other financing pursuant to which the Company receives gross proceeds of at least $2,000,000 and
one-hundred percent (100%) of the underlying notes plus accrued interest shall be mandatorily repaid in an amount equal to 120% of outstanding
principal and interest in cases in which the Company receives gross proceeds of at least $3,000,000. In addition, pursuant to the 8%
Notes and the October 8% Notes, so long as the underlying notes remain outstanding, the Company cannot enter into any financing transactions
pursuant to which the Company sells its securities at a price lower than $0.50 cents per share without the written consent of the 8%
Note Investors.
The
conversion of the 8% Note and the October 8% Notes and the exercise of the underlying warrants are each subject to beneficial ownership
limitations such that the 8% Note Investor and the October 8% Note Investors may not convert the underlying notes or exercise the underlying
warrants to the extent that such conversion or exercise would result in any of the investors being the beneficial owner in excess of
4.99% (or, upon election of the investors, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect
to the issuance of shares of Common Stock issuable upon such conversion or exercise, which beneficial ownership limitation may be increased
or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days
following notice to the Company.
The
Company and the 8% Note Investor and the October 8% Note Investors agreed that for so long as the underlying warrants remain outstanding,
the investor have the right to participate in any issuance of Common Stock, conventional debt, or a combination of such securities and/or
debt, up to an amount equal to thirty-five percent (35%) of such subsequent financing.
The
underlying notes and warrants contain customary events of default, representations, warranties, agreements of the Company and the investors
and customary indemnification rights and obligations of the parties thereto, as applicable.
As
described in Note 1 the Company elected to early adopt ASU 2020-06 using the modified retrospective method which enables entities to
apply the transition requirements in this ASU at the effective date of ASU 2020-06 (rather than as of the earliest comparative period
presented) with the effect of initially adopting ASU 2020-06 recognized as a cumulative-effect adjustment to retained earnings (accumulated
deficit) on the first day of the period adopted.
The
Company has applied ASU-2020-06 to all outstanding financial instruments as of January 1, 2021, (the date of adoption of ASU 2020-06)
and those entered into after January 1, 2021 including the 8% Note. As a result, the 8% Note and October 8% Notes were required to be
separated into its debt and equity components based on their relative fair values because of the issuance of detachable warrants together
with the 8% Note and the October 8% Notes. Accordingly, the Company allocated the proceeds of the 8% note as follows:
Schedule of Convertible Promissory Note with Detachable Warrants to Purchase Common Stock
| |
Amount | |
Proceeds allocated to 8% convertible note | |
$ | 314,104 | |
Proceeds allocated to 8% convertible note | |
$ | 314,104 | |
Proceeds allocated to detachable warrants to purchase common stock | |
| 335,896 | |
| |
| | |
Total proceeds | |
$ | 650,000 | |
The
8% Note and October 8% Notes were recorded at their par value less the discount established at its origination date. The note discount
is amortized over the term of the convertible note utilizing the level-interest method. The following is the assumptions used in calculating
the estimated grant-date fair value of the detachable warrants to purchase common stock granted in connection with the 8% Note and the
October 8% Note during the August and October of 2021:
Schedule of Fair Value of Detachable Warrants to Purchase Common Stock Granted
| |
As of August 30, 2021 (issuance date) | | |
As of October 30, 2021 (issuance date) | |
| |
| | |
| |
Volatility – range | |
| 369.4 | % | |
| 367.7 | % |
Risk-free rate | |
| 0.77 | % | |
| 1.18 | % |
Contractual term | |
| 5.5 years | | |
| 5.5 years | |
Exercise price | |
$ | 0.50 | | |
$ | 0.50 | |
Number of warrants in aggregate | |
| 200,000 | | |
| 1,650,000 | |
Following
is a summary of activity relative to the 8% Note and October 8% Notes as for the three months ended March 31, 2022:
Schedule of Convertible Debt
| |
Amount | |
Balance December 31, 2021 – 8% Convertible Notes | |
$ | 376,274 | |
Amortization of discount during the period to interest expense | |
| 80,667 | |
| |
| | |
Balance March 31, 2022 - 8% Convertible Notes | |
$ | 456,941 | |
The remaining unamortized discount relative to
the 8% Convertible Notes was $193,059 and $273,726 as of March 31, 2022 and December 31, 2021 respectively.
Convertible
Note Payable
On
August 19, 2020, the Company entered into a securities purchase agreement with an accredited investor (the “August Investor”)
for the Company’s senior unsecured convertible note due August 19, 2021 (the “August Note”), with an aggregate principal
face amount of approximately $365,169. The August Note was, subject to certain conditions, convertible into an aggregate of 3,943,820
shares of Common Stock, at a price of $0.10 per share. The Company also issued a five-year common stock purchase warrant to purchase
up to 800,000 shares of Common Stock at an exercise price of $0.50 per share, subject to customary adjustments (the “August Warrant”).
The August Warrant is immediately exercisable and on a cashless basis if the shares underlying such warrant have not been registered
within 180 days after the date of issuance. The August Investor purchased such securities from the Company for an aggregate purchase
price of $325,000. The Company also granted the August Investor certain automatic and piggy-back registration rights whereby the Company
has agreed to register the resale by the August Investor of the shares underlying the August Warrant and the conversion of the August
Note.
The
August Note bore interest at a rate of eight percent (8%) per annum with 12 months guaranteed, may be voluntarily repaid in cash in full
or in part by the Company at any time in an amount equal to 115% of the principal amount of the August Note and any accrued and unpaid
interest, and shall be mandatorily repaid in cash in an amount equal to 115% of the principal amount of the August Note and any accrued
and unpaid interest in the event of the consummation by the Company of any public or private offering or other financing pursuant to
which the Company receives gross proceeds of at least $2,500,000. In addition, pursuant to the August Note, so long as the August Note
remained outstanding, the Company could not enter into any financing transactions pursuant to which the Company sells its securities
at a price lower than ten cents per share without written consent of the August Investor.
The
conversion of the August Note and the exercise of the August Warrant are each subject to beneficial ownership limitations such that the
August Investor may not convert the August Note or exercise the August Warrant to the extent that such conversion or exercise would result
in the August Investor being the beneficial owner in excess of 4.99% (or, upon election of the August Investor, 9.99%) of the number
of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon such
conversion or exercise, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided
that any increase in such limitation will not be effective until 61 days following notice to the Company.
The
Company and the August Investor agreed that for so long as the August Note and August Warrant remains outstanding, the August Investor
has a right to participate in any issuance of Common Stock, conventional debt, or a combination of such securities and/or debt, up to
an amount equal to thirty-five percent (35%) of such subsequent financing.
The
August Note and August Warrant each contain customary events of default, representations, warranties, agreements of the Company and the
August Investor and customary indemnification rights and obligations of the parties thereto, as applicable.
As
described in Note 1 the Company elected to early adopt ASU 2020-06 using the modified retrospective method which enables entities to
apply the transition requirements in this ASU at the effective date of ASU 2020-06 (rather than as of the earliest comparative period
presented) with the effect of initially adopting ASU 2020-06 recognized as a cumulative-effect adjustment to retained earnings (accumulated
deficit) on the first day of the period adopted.
The
Company applied ASU-2020-06 to all outstanding financial instruments as of January 1, 2021, (the date of adoption of ASU 2020-06). The
convertible notes payable issued on August 19, 2020 was the only outstanding financial instrument effected by this new accounting standard
as of January 1, 2021. Therefore the application of ASU-2020-06 to this convertible note payable was used to determine the cumulative
effect of the adoption of the new accounting standard. The cumulative effect of the adoption of the new accounting standard was determined
and recognized as an adjustment to the opening balance of retained earnings (accumulated deficit) which resulted in an increase to the
carrying value of convertible notes payable as of January 1, 2021 by $160,900, a decrease to additional paid in capital of $252,961 and
a decrease to accumulated deficit of $92,061. See Note 1.
On
March 26, 2021, the Company exercised its right to retire the August Note in conjunction with the issuance of Convertible Preferred Stock
(See Note 3 and 10). In accordance with the prepayment provisions contained in the August Note, the Company paid all principal, accrued
interest and the 15% prepayment premium as follows:
Schedule of Prepayment of Note
| |
Amount | |
Principal balance at par | |
$ | 365,169 | |
Remaining discount included in principal balance | |
| (44,883 | ) |
Accrued interest | |
| 17,448 | |
Prepayment premium (including remaining discount due to early retirement) | |
| 115,805 | |
| |
| | |
Total payment to retire the August Note | |
$ | 453,539 | |
The
prepayment premium was charged to non-operating expense as a loss from retirement of convertible note payable (See Note 9).
Following
is a summary of the August Note as for the year ended December 31, 2021:
Summary of Amortization and Retirement of Note
| |
Amount | |
Balance December 31, 2020 - August Note | |
$ | 133,563 | |
Cumulative effect of adoption of ASU 2020-06 | |
| 160,900 | |
Amortization of discount through the March 26, 2021 retirement date | |
| 25,823 | |
Remaining discount recognized as a loss from retirement of convertible note payable | |
| 44,883 | |
Retirement of August Note at par value on March 26, 2021 | |
| (365,169 | ) |
| |
| | |
Balance December 31, 2021 - August Note | |
$ | — | |
Other
notes payable
The
Company had short-term notes outstanding with entities or individuals as follows:
|
●
|
On
July 7, 2015, the Company borrowed a total of $50,000 from an individual under a convertible note payable with the conversion rate
of $5.60 per share. The term of such note was for a period of 90 days and bears interest at 8% per annum. In connection with the
loan and subsequent extensions, the Company issued the individual a warrant for the purchase of 5,000 shares of Common Stock at $5.60
per share for a period of five years from the date of such note and/or extensions. The ratchet provision in such warrant requires
that such warrant be accounted for as derivative liability. The related warrant derivative liability balance was $72 and $189 as
of April 1, 2021 (the extinguishment date) and December 31, 2020, respectively. See Note 6. |
|
|
|
|
|
On
April 1, 2021, the Company and the holder of the $50,000 note payable that was in default reached a settlement whereby the Company
issued a total of 145,000 shares of Common stock in exchange for the extinguishment of the outstanding principal, accrued interest
and associated common stock purchase warrants which totaled $72,874 as of April 1, 2021. The 145,000 shares issued to extinguish
the debt obligations were valued at $40,600 based on the closing market price on the date of the extinguishment. The extinguishment
of the debt obligations resulted in a gain of $32,274 which was recorded in the three months ended June 30, 2021. |
|
|
|
|
●
|
On
July 15, 2015, the Company borrowed a total of $35,000 from an individual under a convertible note payable with the conversion rate
of $5.60 per share. The term of such note was for a period of 90 days and bears interest at 8% per annum. In connection with the
loan and subsequent extensions, the Company issued the individual a warrant for the purchase of 3,500 shares of Common Stock at $5.60
per share for a period of five years from the date of such note and/or extensions. The ratchet provision in such warrant requires
that such warrant be accounted for as derivative liability. The related warrant derivative liability balance was $50 and $132 as
of April 1, 2021 (the extinguishment date) and December 31, 2020, respectively. See Note 6. |
|
|
|
|
|
On
April 1, 2021, the Company and the holder of the $35,000 note payable that was in default reached a settlement whereby the Company
issued a total of 100,000 shares of Common stock in exchange for the extinguishment of the outstanding principal, accrued interest
and associated common stock purchase warrants which totaled $50,956 as of April 1, 2021. The 100,000 shares issued to extinguish
the debt obligations were valued at $28,000 based on the closing market price on the date of the extinguishment. The extinguishment
of the debt obligations resulted in a gain of $22,956 which was recorded in the three months ended June 30, 2021. |
Note
4 – Accrued liabilities
Accrued
liabilities consist of the following at March 31, 2022 and December 31, 2021:
Schedule of Accrued Liabilities
| |
March 31, 2022 | | |
December 31, 2021 | |
Accrued rent | |
$ | 614,918 | | |
$ | 614,918 | |
Accrued Nicaragua Concession fees | |
| 544,485 | | |
| 544,485 | |
| |
| | | |
| | |
Total accrued liabilities | |
$ | 1,159,403 | | |
$ | 1,159,403 | |
The
accrued rent balances relate to unpaid rent for the Company’s previous headquarters in Denver Colorado and represents unpaid rents
and related costs for the period June 2006 through November 2008. The Company has not had any correspondence with the landlord for several
years and will seek to settle and/or negotiate the matter when it has the financial resources to do so.
The
accrued Nicaraguan Concession fees were accrued during the time the Concessions had lapsed and the Company was attempting to negotiate
extensions to the underlying concessions with the Nicaraguan government which were unsuccessful. The Company abandoned all efforts to
negotiate an extension to the Concessions effective January 1, 2020 and ceased the accrual of all related fees at that time.
On
March 31, 2021, the Company and six creditors entered into Debt Settlement Agreements which extinguished accounts payable and accrued
liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of 3% Convertible Promissory Notes with
detachable warrants to purchase 5,732,994 shares of Common Stock for $0.50 per share. (See Note 3, 7 and 13)
Note
5 – Stock Options
Total
stock-based compensation is comprised of the following for the three months ended March 31, 2022 and 2021:
Schedule of Stock-based Compensation
| |
Three Months Ended March 31, | |
| |
2022 | | |
2021 | |
Stock-based compensation – stock option grants | |
$ | 76,500 | | |
$ | — | |
| |
| | | |
| | |
Stock-based compensation – restricted stock grants | |
| 81,250 | | |
| 81,250 | |
| |
| | | |
| | |
Stock-based compensation – warrants issued for services pursuant to USNG Letter Agreement (See Note 7) | |
| 72,156 | | |
| — | |
| |
| | | |
| | |
Total stock-based compensation | |
$ | 229,906 | | |
$ | 81,250 | |
The
Company applies ASC 718, Stock Compensation, which requires companies to recognize compensation expense for share-based payments
based on the estimated fair value of the awards. ASC 718 also requires tax benefits relating to the deductibility of increases in the
value of equity instruments issued under share-based compensation arrangements to be presented as financing cash inflows in the statement
of cash flows. Compensation cost is recognized based on the grant-date fair value for all share-based payments granted and is estimated
in accordance with the provisions of ASC 718.
At
the Annual Meeting of Stockholders held on October 13, 2021, the stockholders approved the 2021 Plan and the Company reserved
5,000,000
shares for issuance under the 2021 Plan. At the
Annual Meeting of Stockholders held on September 25, 2015, the stockholders approved the 2015 Plan and the Company reserved 500,000
shares for issuance under the 2015 Plan.
The
2021 Plan and the 2015 Plan provide for under which both incentive and non-statutory stock options may be granted to employees, officers,
non-employee directors and consultants. An aggregate of 5,500,000 shares of the Company’s Common Stock is reserved for issuance
under the 2021 and 2015 Plan. Options granted under the 2021 Plan and 2015 Plan allow for the purchase of shares of Common Stock at prices
not less than the fair market value of such stock at the date of grant, become exercisable immediately or as directed by the Company’s
Board of Directors and generally expire ten years after the date of grant. The Company has issued stock options and restricted stock
awards that are not pursuant to a formal plan with terms similar to the 2021 and 2015 Plans.
As
of March 31, 2022, 5,500,000
shares were available for future grants under
the 2021 Plan and the 2015 Plan. All other Plans have now expired.
The
fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model, which requires the input
of subjective assumptions, including the expected term of the option award, expected stock price volatility and expected dividends. These
estimates involve inherent uncertainties and the application of management judgment. For purposes of estimating the expected term of
options granted, the Company aggregates option recipients into groups that have similar option exercise behavioral traits. Expected volatilities
used in the valuation model are based on the expected volatility based on historical volatility. The risk-free rate for the expected
term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company’s forfeiture rate assumption
used in determining its stock-based compensation expense is estimated based on historical data. The actual forfeiture rate could differ
from these estimates. There were 1,800,000
options granted during June 2021.
Stock
option grants
The
following table summarizes stock option activity for the three months ended March 31, 2022 and 2021:
Summary of Stock Option Activity
| |
Number of Options | | |
Weighted Average Exercise Price Per Share | | |
Weighted Average Remaining Contractual Term | | |
Aggregate Intrinsic Value | |
Outstanding at December 31, 2020 | |
| 332,000 | | |
$ | 41.86 | | |
| 1.28 years | | |
$ | — | |
Granted | |
| — | | |
| — | | |
| | | |
| | |
Exercised | |
| — | | |
| — | | |
| | | |
| | |
Forfeited | |
| (55,000 | ) | |
| (50.25 | ) | |
| | | |
| | |
Outstanding at March 31, 2021 | |
| 277,000 | | |
$ | 39.75 | | |
| 1.27 years | | |
$ | — | |
Outstanding and exercisable at March 31, 2021 | |
| 277,000 | | |
$ | 39.75 | | |
| 1.27 years | | |
$ | — | |
| |
| | | |
| | | |
| | | |
| | |
Outstanding and exercisable at December 31, 2021 | |
| 1,892,000 | | |
$ | 1.93 | | |
| 9.07 years | | |
$ | — | |
Granted | |
| — | | |
| — | | |
| | | |
| | |
Exercised | |
| — | | |
| — | | |
| | | |
| | |
Forfeited | |
| — | | |
| — | | |
| | | |
| | |
Outstanding at March 31, 2022 | |
| 1,892,000 | | |
$ | 1.93 | | |
| 8.82 years | | |
$ | — | |
Outstanding and exercisable at March 31, 2022 | |
| 92,000 | | |
$ | 30.00 | | |
| 1.79 years | | |
$ | — | |
The
following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable
options under the Company’s option plans as of March 31, 2022:
Summary of Exercise Prices and Weighted Average Remaining Contractual Life
| | | |
| Outstanding options | |
| Exercisable options | |
| Exercise price per share | | |
| Number of options | | |
Weighted average remaining contractual life | |
| Number of options | | |
| Weighted average remaining contractual life | |
| | | |
| | | |
| |
| | | |
| | |
$ | 0.50 | | |
| 1,800,000 | | |
9.18 years | |
| — | | |
| — | |
$ | 30.00 | | |
| 92,000 | | |
1.79 years | |
| 92,000 | | |
| 1.79 years | |
| | | |
| | | |
| |
| | | |
| | |
| Total | | |
| 1,892,000 | | |
8.82 years | |
| 92,000 | | |
| 1.79 years | |
The
following is the assumptions used in calculating the estimated grant-date fair value of the stock options granted during 2021:
Schedule of Stock Option Valuation Assumption
| |
As of June 4, 2021 (issuance date) | |
| |
| |
Volatility – range | |
| 286.6 | % |
Risk-free rate | |
| 1.56 | % |
Contractual term | |
| 10.0 years | |
Exercise price | |
$ | 0.50 | |
Number of options in aggregate | |
| 1,800,000 | |
The
Company recorded stock-based compensation expense in connection with the vesting of stock options granted aggregating $76,500 and $-0-
for the three months ended March 31, 2022 and 2021, respectively.
The
total grant date fair value of the 1,800,000 stock options issued during 2021 was $305,997 in total or $0.17 per share and there were
no stock options granted during the three months ended March 31, 2022.
The
intrinsic value as of March 31, 2022 related to the vested and unvested stock options as of that date was $-0-. The unrecognized compensation
cost as of March 31, 2022 related to the unvested stock options as of that date was $51,000 which will be amortized over the next two
months in accordance with the respective vesting scale.
Restricted
stock grants.
During
August 2020 the Board of Directors granted 5,000,000 shares of restricted stock awards to our officers, directors and a consultant. During
October 2019 the Board of Directors granted 2,000,000 shares of restricted stock awards to our new Chief Operating Officer. Restricted
stock awards are valued on the date of grant and have no purchase price for the recipient. Restricted stock awards typically vest over
a period of time generally corresponding to yearly anniversaries of the grant date. Unvested shares of restricted stock awards may be
forfeited upon the termination of service of employment with the Company, depending upon the circumstances of termination. Except for
restrictions placed on the transferability of restricted stock, holders of unvested restricted stock have full stockholder’s rights,
including voting rights and the right to receive cash dividends.
A
summary of all restricted stock activity under the equity compensation plans for the three months ended March 31, 2022 and
2021 is as follows:
Schedule of Restricted Stock Unit Activity
| |
Number of Restricted shares | | |
Weighted average grant date fair value | |
Nonvested balance, December 31, 2020 | |
| 3,750,000 | | |
$ | 0.13 | |
Granted | |
| — | | |
| — | |
Vested | |
| (625,000 | ) | |
| (0.13 | ) |
Forfeited | |
| — | | |
| — | |
Nonvested balance, March 31, 2021 | |
| 3,125,000 | | |
$ | 0.13 | |
| |
| | | |
| | |
Nonvested balance, December 31, 2021 | |
| 1,250,000 | | |
$ | 0.13 | |
Granted | |
| — | | |
| — | |
Vested | |
| (625,000 | ) | |
| (0.13 | ) |
Forfeited | |
| — | | |
| — | |
Nonvested balance, March 31, 2022 | |
| 625,000 | | |
$ | 0.13 | |
The
Company recorded stock-based compensation expense in connection with the issuance/vesting of restricted stock grants aggregating $81,250
and $81,250 during the three months ended March 31, 2022 and 2021, respectively.
The
Company estimated the fair market value of these restricted stock grants based on the closing market price on the date of grant. As of
March 31, 2022, there were $81,250 of total unrecognized compensation costs related to all remaining non-vested restricted stock grants,
which will be amortized over the next three months in accordance with the respective vesting scale.
The
nonvested balance of restricted stock vests as follows:
Schedule of Nonvested Restricted Stock Unit Activity
Years ended | |
Number of shares | |
| |
| |
2022 | |
| 625,000 | |
2023 | |
| — | |
Note
6 – Derivative Instruments
The
estimated fair value of the Company’s derivative liabilities, all of which were related to the detachable warrants issued in connection
with various notes payable that have now been paid off or settled, were estimated using a closed-ended option pricing model utilizing
assumptions related to the contractual term of the instruments, estimated volatility of the price of the Company’s common stock
and current interest rates. The detachable warrants issued in connection with the two other short-term notes payable (See Note 3) contained
ratchet and anti-dilution provisions that remain in effect during the term of the warrants while the ratchet and anti-dilution provisions
of the other notes payable cease when the related note payable is extinguished.
On
April 1, 2021, the outstanding warrants treated as derivatives and the related notes payable containing such ratchet and anti-dilution
provisions were extinguished through an exchange transaction as described in Note 3. Therefore, the derivative liability was adjusted
to fair value and extinguished as of April 1, 2021.
A
summary of the assumptions used in calculating estimated fair value of such derivative liabilities as of March 31, 2021 is as follows:
Schedule
of Assumptions Used to Estimate Fair Value of Derivative Liabilities
| |
As of March 31, 2021 | |
| |
| |
Volatility – range | |
| 373.9 | % |
Risk-free rate | |
| 0.92 | % |
Contractual term | |
| 0.2 years | |
Exercise price | |
$ | 5.60 | |
Number of warrants in aggregate | |
| 8,500 | |
The
following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial instruments,
measured at fair value on a recurring basis using significant unobservable inputs for both open and closed derivatives:
Summary
of Changes in Fair Value of Derivative Financial Instruments
| |
Amount | |
Balance at December 31, 2020 | |
$ | 321 | |
Unrealized derivative gains included in other income/expense for the period | |
| (199 | ) |
Balance at March 31, 2021 | |
$ | 122 | |
Balance at December 31, 2021 | |
$ | — | |
Unrealized derivative gains included in other income/expense for the period | |
| — | |
Balance at March 31, 2022 | |
$ | — | |
Note
7 – Warrants
The
following table summarizes warrant activity for the three months ended March 31, 2022 and 2021:
Summary of Warrant Activity
| |
Number of Warrants | | |
Weighted Average Exercise Price Per Share | |
Outstanding and exercisable at December 31, 2020 | |
| 1,528,380 | | |
$ | 0.65 | |
Issued in connection with issuance of Series A convertible preferred stock (See Note 3) | |
| 5,256,410 | | |
| 0.39 | |
Issued in connection with issuance of 3%
convertible promissory notes (see Note 3 and 13) | |
| 5,732,994 | | |
| 0.50 | |
Forfeited/expired | |
| (18,500 | ) | |
| (5.28 | ) |
Outstanding and exercisable at March 31, 2021 | |
| 12,499,284 | | |
$ | 0.46 | |
| |
| | | |
| | |
Outstanding and exercisable at December 31, 2021 | |
| 17,580,784 | | |
$ | 0.47 | |
Forfeited/expired | |
| — | | |
| — | |
| |
| | | |
| | |
Outstanding and exercisable at March 31, 2022 | |
| 17,580,784 | | |
$ | 0.47 | |
The
weighted average term of all outstanding common stock purchase warrants was 4.3 years and 4.6 years as of March 31, 2022 and December
31, 2021, respectively. The intrinsic value of all outstanding common stock purchase warrants and the intrinsic value of all vested common
stock purchase warrants was zero as of March 31, 2022 and December 31, 2021.
The
following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable
warrants to purchase common shares as of March 31, 2022:
Summary of Warrant Range of Exercise Prices and Weighted Average Remaining Contractual Life
| | | |
| Outstanding and exercisable warrants | |
| Exercise price per share | | |
| Number of warrants | | |
| Weighted average
remaining
contractual life | |
$ | 0.39 | | |
| 5,256,410 | | |
| 4.5 years | |
$ | 0.50 | | |
| 12,324,374 | | |
| 4.2 years | |
| | | |
| | | |
| | |
| Total | | |
| 17,580,784 | | |
| 4.3 years | |
Warrants
issued pursuant to USNG Letter Agreement
On
November 9, 2021, the Company entered into a letter agreement (the “USNG Letter Agreement”) with U.S. Noble Gas, LLC (“USNG”),
pursuant to which USNG will provide consulting services to the Company for exploration, testing, refining, production, marketing and
distribution of various potential reserves of noble gases and rare earth element/minerals on the Company’s recently acquired 11,000-acre
oil and gas properties in the Otis Albert Field located on the Central Kansas Properties. The USNG Letter Agreement would cover
all of the noble gas, specifically including helium, and rare earth elements/minerals potentially existing on the Central Kansas Properties
and the Company’s future acquisitions, if any.
The
USNG Letter Agreement also provides that USNG will supply a large vessel designed for flows up to 5,000 barrels of water per day at low
pressures, known as a gas extraction/separator unit. The gas extraction/separator unit is a dewatering vessel that the Company may use
for multiple wells in the future.
The
USNG Letter Agreement requires the Company to establish a four-member board of advisors (the “Board of Advisors”) comprised
of various experts involved in noble gas and rare earth elements/minerals. The Board of Advisors will help attract both industry partners
and financial partners for developing a large helium, noble gas and/or rare earth element/mineral resources that may exist in the region
where the Company currently operates. The industry partners would include helium, noble gas and/or rare earth element/mineral purchasers
and exploration and development companies from the energy industry. The financial partners may include large family offices or small
institutions.
The
Company will pay USNG a monthly cash fee equal to $8,000 per month beginning at the onset of commercial helium or minerals production
and sales, subject to certain thresholds. Such monthly fees will become due and payable for any month that AMGAS receives cash receipts
in excess of $25,000 derived from the sale of noble gases and/or rare earth elements/minerals. The Company has not yet achieved the $25,000
cash receipts threshold, therefore there has been no payment or accrual liability relative to this cash fee provision as of March 31,
2022.
In
consideration for the consulting services to be rendered and pursuant to the terms of the USNG Letter Agreement, the Company issued warrants
to purchase, in the aggregate, 2,060,000 shares of its common stock, par value $0.0001 per share (the “Common Stock”), at
an exercise price of $0.50 (the “Exercise Price”) to three of USNG’s principal consultants and four third-party service
providers. The Company was also required to issue warrants to purchase, in the aggregate, 1,200,000 shares of Common Stock at $0.50 per
share exercise price to three members of the Board of Advisors. The Company granted a total of 3,260,000 warrants to purchase its Common
Stock with an exercise price of $0.50 per share in connection with the USNG Letter Agreement and the arrangements described therein.
The warrants expire five years after the date of the USNG Letter Agreement.
The
fair value of the warrants to purchase common stock in consideration for services to be rendered under the USNG Letter Agreement with
USNG is estimated on the date of grant using the Black-Scholes option-pricing model, which requires the input of subjective assumptions,
including the expected term of the warrant, expected stock price volatility and expected dividends. These estimates involve inherent
uncertainties and the application of management judgment. For purposes of estimating the expected term of warrants granted, the Company
considered the historical pattern of warrant exercises behavioral traits and determined that the expected term should be 5 years. Expected
volatilities used in the valuation model are based on the expected volatility based on historical volatility. The risk-free rate for
the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company’s forfeiture
rate assumption used in determining its stock-based compensation expense is estimated based on historical data. The actual forfeiture
rate could differ from these estimates.
The
following is the assumptions used in calculating the estimated grant-date fair value of the warrants issued pursuant to the USNG Letter
Agreement granted on November 9, 2021:
Schedule of Warrants Valuation Assumption
| |
As of November 9, 2021 (issuance date) | |
| |
| |
Volatility – range | |
| 359.3 | % |
Risk-free rate | |
| 1.08 | % |
Expected term | |
| 5.0 years | |
Exercise price | |
$ | 0.50 | |
Number of warrants in aggregate | |
| 3,260,000 | |
The
Company recognized $72,156
and $-0-
of compensation expense relative to the 3,260,000
warrants to purchase common stock issued pursuant
to the USNG Letter Agreement during the three months ended March 31, 2022 and 2021, respectively. There have been no
exercises or forfeitures of the warrants to purchase
common stock relative to the USNG Letter during the three months ended March 31, 2022 and 2021.
The
total grant date fair value of the 3,260,000 warrants to purchase common stock issued pursuant to the USNG Letter Agreement on November
9, 2021 was $1,434,313 in total or $0.44 per share. Total unrecognized compensation cost related to the 3,260,000 warrants to purchase
common stock issued pursuant to the USNG Letter Agreement, as of March 31, 2022 was $1,314,786 which will be amortized over the next
fifty-five months.
Note
8 – Income Taxes
The
effective income tax rate on income (loss) before income tax benefit varies from the statutory federal income tax rate primarily due
to the net operating loss history of the Company maintaining a full reserve on all net deferred tax assets during the three months ended
March 31, 2022 and 2021.
The
Company has incurred operating losses in recent years, and it continues to be in a three-year cumulative loss position at March 31, 2022.
Accordingly, the Company determined there was not sufficient positive evidence regarding its potential for future profits to outweigh
the negative evidence of our three-year cumulative loss position under the guidance provided in ASC 740. Therefore, it determined to
continue to provide a 100% valuation allowance on its net deferred tax assets. The Company expects to continue to maintain a full valuation
allowance until it determines that it can sustain a level of profitability that demonstrates its ability to realize these assets. To
the extent the Company determines that the realization of some or all of these benefits is more likely than not based upon expected future
taxable income, a portion or all of the valuation allowance will be reversed.
For
income tax purposes, the Company has net operating loss carry-forwards of approximately $62,980,000 in accordance with its 2021 Federal
Income tax return as filed. Approximately $61,045,000 of such net operating loss carry-forwards expire from 2028 through 2037 while $1,935,000
of such net operating loss carry-forwards have an indefinite carryforward period in accordance with the Tax Cuts and Jobs Act. In addition,
the Tax Cuts and Jobs Act limits the usage of net operating loss carryforwards to 80% of taxable income per year.
The
Company has recently completed the filing of its tax returns for the tax years 2012 through 2021. Therefore, all such tax returns
are open to examination by the Internal Revenue Service.
The
Internal Revenue Code contains provisions under Section 382 which limit a company’s ability to utilize net operating loss carry-forwards
in the event that it has experienced a more than 50% change in ownership over a three-year period. Management has completed its review
of whether such ownership changes have occurred, and based upon such review, management believes that the Company is not currently subject
to an annual limitation or the possibility of the complete elimination of the net operating loss carry- forwards. In addition, the Company
may be limited by additional ownership changes which may occur in the future.
Note
9 – Gain on Exchange and Extinguishment of Liabilities
During
the three months ended March 31, 2022 and 2021, the Company recorded gains on the extinguishment of liabilities through the negotiation
of settlements with certain creditors and through the operation of law as follows:
Schedule of Estimated Gain on Exchange and Extinguishment of Debt
| |
Three months ended March 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Gain (loss) on Exchange and Extinguishment of Liabilities: | |
| | | |
| | |
Gain on exchange and extinguishment of liabilities | |
$ | — | | |
$ | 124,177 | |
Gain from settlement of litigation (See Note 11) | |
| — | | |
| 23,000 | |
Loss from retirement of convertible note payable (See Notes 3) | |
| — | | |
| (115,805 | ) |
| |
| | | |
| | |
Total | |
$ | — | | |
$ | 31,372 | |
Gain
on exchange and extinguishment of liabilities - On March 31, 2021, the Company entered into Debt Settlement Agreements with six creditors
(five of which were related parties) which extinguished accounts payable and accrued liabilities totaling $2,866,497 in exchange for
the issuance of $28,665 in principal balance of 3% Convertible Promissory Notes (the “3% Notes”) with detachable warrants
to purchase 5,732,994 shares of Common Stock for $0.50 per share. The 3% Notes allows for prepayment at any time with all principal and
accrued interest becoming due and payable at maturity on March 30, 2026. The 3% Notes are convertible as to principal and any accrued
interest, at the option of holder, into shares of the company’s Common Stock at any time after the issue date and prior to the
close of business on the business day preceding the Maturity Date at the rate of fifty cents ($0.50) per share, subject to normal and
customary adjustment.
The
warrants to purchase 5,732,994 shares of common stock issued pursuant to the Debt Settlement Agreements were valued at $1,605,178 using
the black-scholes methodology. The following assumptions were used in calculating the estimated fair value of the warrants as of March
31, 2021, their date of issuance:
Schedule of Fair Value of Warrants Estimated Valuation Assumptions
| |
As of March 31, 2021 | |
| |
| |
Volatility – range | |
| 374.0 | % |
Risk-free rate | |
| 0.92 | % |
Contractual term | |
| 5.0 years | |
Exercise price | |
$ | 0.50 | |
Number of warrants in aggregate | |
| 5,732,994 | |
An
aggregate of $2,577,727 of the total accounts payable and accrued liabilities that were extinguished were with five related parties.
Such related parties were issued $25,777 principal balance of the 3% Convertible Promissory Notes and warrants to purchase 5,155,454
shares of Common Stock in exchange for the extinguishment of their respective debt obligations. The Company recognized a gain on extinguishment
of liabilities for the portion of the extinguishment with non-related parties. Furthermore, it recognized the portion of the gain on
extinguishment of liabilities with related parties as a contribution of capital.
The
gain on extinguishment of liabilities from the Debt Settlement Agreements was determined as follows:
Schedule of Gain on Extinguishment of Liabilities
| |
Amount | |
| |
| |
Total accounts payable and accrued liabilities extinguished | |
$ | 2,866,497 | |
Less: Principal balance of 3% Convertible Promissory Notes issued | |
| (28,665 | ) |
Less: Fair value of warrants to purchase common stock issued | |
| (1,605,178 | ) |
| |
| | |
Total gain on extinguishment of liabilities | |
$ | 1,232,654 | |
Less: Related party amounts reported as a capital contribution | |
| (1,108,477 | ) |
| |
| | |
Gain on extinguishment of liabilities | |
$ | 124,177 | |
Note
10 – Asset Retirement Obligations
The
Company’s asset retirement obligations primarily relate to the Company’s portion of future plugging and abandonment costs
for wells and related facilities. The following table presents the changes in the asset retirement obligations for the three months ended
March 31, 2022 and 2021:
Schedule of Assets Retirement Obligation
| |
Amount | |
| |
| |
Asset retirement obligation at December 31, 2020 | |
$ | 1,716,003 | |
Additions | |
| — | |
Accretion expense during the period | |
| — | |
Asset retirement obligation at March 31, 2021 | |
$ | 1,716,003 | |
| |
| | |
Asset retirement obligation at December 31, 2021 | |
$ | 1,730,264 | |
Additions | |
| — | |
Accretion expense during the period | |
| 279 | |
| |
| | |
Asset retirement obligation at March 31, 2022 | |
$ | 1,730,543 | |
The
$1,716,003 asset retirement obligation existing at March 31, 2021 and in years prior to 2020 represented the remaining potential liability
for wells AMGAS had owned in Texas and Wyoming prior to their sales/disposal in 2012. AMGAS was not in compliance with then existing
federal, state and local laws, rules and regulations for its previously owned Texas and Wyoming domestic oil and gas properties. Regardless,
that all previously owned domestic oil and gas properties held by Infinity – Wyoming and Infinity-Texas being disposed of in 2012
and prior years; the Company may remain liable for certain asset retirement costs should the new owners not complete their asset retirement
obligations. Management believes the asset retirement obligations recorded relative to these Texas and Wyoming wells of $1,716,003 as
of March 31, 2022 and December 31, 2021 are sufficient to cover any potential noncompliance liabilities relative to the plugging of abandoned
wells, the removal of facilities and equipment, and site restoration on oil and gas properties for its former oil and gas properties.
The
Company assumed a $13,425 asset
retirement obligation pursuant to an acquisition on April 1, 2021 and recorded $279
of accretion expense during the three months
ended March 31, 2022 related to the acquisition of the Oil and Gas Properties as further described in Note 2.
Note
11 – Commitments and Contingencies
Lack
of Compliance with Law Regarding Domestic Properties
AMGAS
was not in compliance with then existing federal, state and local laws, rules and regulations for domestic oil and gas properties owned
and disposed of in 2012 and in years prior to 2012 and could have a material or significantly adverse effect upon the liquidity, capital
expenditures, earnings or competitive position of AMGAS. All domestic oil and gas properties held by Infinity – Wyoming and Infinity-Texas
were disposed of in 2012 and prior; however, the Company may remain liable for certain asset retirement costs should the new owners not
complete their obligations. Management believes the total asset retirement obligations recorded for these prior matters of $1,716,003
as of March 31, 2022 and December 31, 2021 are sufficient to cover any potential noncompliance liabilities relative to the plugging of
abandoned wells, the removal of facilities and equipment, and site restoration on oil and gas properties for its former oil and gas properties.
Litigation
The
Company is subject to various claims and legal actions in which vendors are claiming breach of contract due to the Company’s failure
to pay amounts due. The Company believes that it has made adequate provision for these claims in the accompanying financial statements.
The
Company is currently involved in litigation as follows:
● |
In
October 2012 the State of Texas filed a lawsuit naming Infinity-Texas, the Company and the corporate officers of Infinity-Texas,
seeking $30,000 of reclamation costs associated with a single well, in addition to administrative expenses and penalties. The Company
engaged in negotiations with the State of Texas in late 2012 and early 2013 and reached a settlement agreement that would reduce
the aggregate liability, in this action and any extension of this to other Texas wells, to $45,103, which amount has been paid. Certain
performance obligations remain which must be satisfied in order to finally settle and dismiss the matter. |
|
|
|
Pending
satisfactory performance of the performance obligations and their acceptance by the State of Texas, the officers have potential liability
regarding the above matter, and the officers are held personally harmless by indemnification provisions of the Company. Therefore,
to the extent they might actually occur, these liabilities are the obligations of the Company. Management estimates that the liabilities
associated with this matter will not exceed $780,000, calculated as $30,000 for each of the 26 Infinity-Texas operated wells. This
related liability, less the payment made to the State of Texas in 2012 in the amount of $45,103, is included in the asset retirement
obligation on the accompanying balance sheets. |
|
|
● |
Cambrian
Consultants America, Inc. (“Cambrian”) filed an action in the District Court of Harris County, Texas, number CV2014-55719,
on September 26, 2014 against the Company resulting from certain professional consulting services provided for quality control and
management of seismic operations during November and December 2013 on the Nicaraguan Concessions. Cambrian provided these services
pursuant to a Master Consulting Agreement with the Company, dated November 20, 2013, and has claimed breach of contract for failure
to pay amounts due. On December 8, 2014, a default judgment was entered against the Company in the amount of $96,877 plus interest
and attorney fees. The Company has included the impact of this litigation as a liability in its accounts payable. The Company will
seek to settle the default judgment when it has the financial resources to do so. |
|
|
● |
Torrey
Hills Capital, Inc. (“Torrey”) notified the Company by letter, dated August 15, 2014, of its demand for the payment of
$56,000, which it alleged was unpaid and owed under a consulting agreement dated October 18, 2013. The parties entered into a consulting
agreement under which Torrey agreed to provide investor relations services in exchange for payment of $7,000 per month and the issuance
of 15,000 shares of Common Stock. The agreement was for an initial three month-term with automatic renewals unless terminated upon
30 days’ written notice by either party. The Company made payments totaling $14,000 and issued 15,000 shares of Common Stock
during 2013. The Company contends that Torrey breached the agreement by not performing the required services and that it had provided
proper notice of termination to Torrey. Furthermore, the Company contends that the parties agreed to settle the dispute on or about
June 19, 2014 under which it would issue 2,800 shares of Common Stock in full settlement of any balance then owed and final termination
of the agreement. Torrey disputed the Company’s contentions and submitted the dispute to binding arbitration. The Company was
unable to defend itself and the arbitration panel awarded Torrey a total of $79,594 in damages. The Company has accrued this amount
in accounts payable as of March 31, 2022 and December 31, 2021, which management believes is sufficient to provide for the ultimate
resolution of this dispute. |
|
|
● |
Joseph
Ryan (“Ryan”) filed an action in the District Court of Johnson County, Kansas, number 20CV01493, on March 20, 2020 against
the Company resulting from certain professional consulting services Ryan alleges he performed for Social, Environmental and Economic
Impact Assessments during July 2012 through September 2015 on the Nicaraguan Concessions. Ryan alleges that such services were provided
pursuant to oral agreements with AMGAS. Ryan claims breach of contract for failure to pay $12,000 amounts invoiced and due. On December
23, 2020, Ryan filed a Motion for Default Judgment for $12,000 in unpaid invoices plus legal, fees, statutory interest and any expert
testimony fees. |
|
On
February 10, 2021, the parties agreed to a full and complete settlement of the matter with prejudice. The terms of the settlement
required the Company to pay a total of $10,000 to extinguish accounts payable to Ryan totaling $33,000. As a result, the Company
recorded a $23,000 gain from settlement of litigation during the year ended December 31, 2021 (See note 9).
USNG
Letter Agreement
On
November 9, 2021, the Company entered into a letter agreement (the “USNG Letter Agreement”) with U.S. Noble Gas, LLC
(“USNG”), pursuant to which USNG will provide consulting services to the Company for exploration, testing, refining,
production, marketing and distribution of various potential reserves of noble gases and rare earth element/minerals on the Company’s
recently acquired 11,000-acre
oil and gas properties in the Otis Albert Field located on the Central Kansas Properties. The USNG Letter Agreement would
cover all of the noble gas, specifically including helium, and rare earth elements/minerals potentially existing on the Central Kansas
Properties and the Company’s future acquisitions, if any.
The
USNG Letter Agreement also provides that USNG will supply a large vessel designed for flows up to 5,000 barrels of water per day
at low pressures, known as a gas extraction/separator unit. The gas extraction/separator unit is a dewatering vessel that the Company
may use for multiple wells in the future.
The
USNG Letter Agreement requires the Company to establish a four-member board of advisors (the “Board of Advisors”) comprised
of various experts involved in noble gas and rare earth elements/minerals. The Board of Advisors will help attract both industry
partners and financial partners for developing a large helium, noble gas and/or rare earth element/mineral resources that may exist
in the region where the Company currently operates. The industry partners would include helium, noble gas and/or rare earth element/mineral
purchasers and exploration and development companies from the energy industry. The financial partners may include large family offices
or small institutions.
The
Company will pay USNG a monthly cash fee equal to $8,000
per month beginning at the onset of commercial
helium or minerals production and sales, subject to certain thresholds. Such monthly fees will become due and payable for any month
that AMGAS receives cash receipts in excess of $25,000
derived from the sale of noble gases and/or
rare earth elements/minerals. The Company has not yet achieved the $25,000
cash receipts threshold, therefore there
has been no payment
or accrual liability relative to this cash fee provision as of March 31, 2022. |
Note
12 – Stockholder’s Deficit
Name
change
At
the Annual Meeting of Stockholders held on October 13, 2021 the stockholders approved an amendment
to the Company’s Certificate of Incorporation, as amended, changing the Company’s name to American Noble Gas, Inc.
Stockholder
Written Consent Amendment
At
the Annual Meeting of Stockholders held on October 13, 2021 the stockholders approved an amendment
to the Company’s Certificate of Incorporation, as amended, removing the provision providing that any action taken by the stockholders
by written consent in lieu of a meeting requires that all of the Company’s stockholders entitled to vote on such action consent
in writing thereto.
2021
American Noble Gas, Inc. Stock Option and Restricted Stock Plan
At
the Annual Meeting of Stockholders held on October 13, 2021 and the stockholders approved the 2021 Plan and the Company reserved 5,000,000
shares for issuance under the 2021 Plan.
Reincorporation
in Nevada
On
December 7, 2021, pursuant to an Agreement and Plan of Merger, American Noble Gas, Inc., a Delaware corporation, merged with and into
its wholly owned subsidiary, American Noble Gas Inc, a Nevada corporation (“AMGAS-Nevada” and/or the “Company”)
with AMGAS-Nevada continuing as the surviving corporation. In conjunction with the merger, AMGAS-Nevada succeeded to the assets, continued
the business and assumed the rights and obligations of the predecessor Delaware corporation existing immediately prior to the merger.
The merger was consummated by the filing of a certificate of merger on December 7, 2021 with the Secretary of State of the State of Delaware
and articles of merger with the Secretary of State of the State of Nevada. The Agreement and Plan of Merger and transactions contemplated
thereby were adopted by the holders of a majority of the outstanding shares of the predecessor company’s common stock, par value,
$0.0001 per share and/or Series A Convertible Preferred Stock, par value $0.0001 per share, on an as-converted common stock basis, by
written consent in lieu of a special meeting of stockholders, in accordance with the Delaware General Corporation Law.
Pursuant
to the Agreement and Plan of Merger, (i) each outstanding share of predecessor’s common stock automatically converted into one
share of common stock, par value $0.0001 per share, of AMGAS-Nevada, (ii) each outstanding share of the predecessor’s series A
convertible preferred stock automatically converted into one share of series A convertible preferred stock, par value $0.0001 per share
of AMGAS-Nevada, and (iii) each outstanding option, right or warrant to acquire shares of predecessor common stock converted into an
option, right or warrant to acquire an equal number of shares of AMGAS-Nevada common stock under the same terms and conditions as the
original options, rights or warrants.
Similar
to the shares of predecessor common stock prior to the merger, the shares of AMGAS-Nevada common stock are quoted on the OTCQB tier operated
by the OTC Markets Group Inc. under the symbol “IFNY”. In accordance with the Agreement and Plan of Merger, each outstanding
certificate previously representing shares of the predecessor’s common stock or series A preferred stock automatically represents,
without any action of the predecessor’s stockholders, the same number of shares of AMGAS-Nevada common stock or series A preferred
stock, as applicable.
Pursuant
to the Agreement and Plan of Merger, the directors and officers of the Predecessor company immediately prior to the merger became the
directors and officers of AMGAS-Nevada and continued their respective directorship or services with the Company on the same terms as
their respective directorship or service with the predecessor registrant immediately prior to the merger.
As
a result of the merger, the internal affairs of the Company ceased to be subject to the Delaware General Corporation Law or governed
by the predecessor’s Delaware Certificate of Incorporation, as amended and its bylaws. As of the December 7, 2021 merger date,
the Company is now subject to the Nevada Revised Statutes and is governed by the Company’s Articles of Incorporation and Bylaws
as filed in the State of Nevada.
Common
Stock
At
the Annual Meeting of Stockholders held on October 13, 2021 the stockholders approved an amendment
to the Company’s Certificate of Incorporation, as amended, increasing the Company’s authorized shares of common stock from
75,000,000 shares to 500,000,000 shares.
As
of March 31, 2022 and December 31, 2021 the Company is authorized to issue up to 500,000,000 common shares with a par value of $0.0001
per share.
Series
A Convertible Preferred Stock
As
of March 31, 2022 and December 31, 2021, the Company is authorized to issue up to 10,000,000
preferred shares with a par value of $0.0001
per share.
The
following summarizes the activity in Series A Convertible Preferred Stock for the three months ended March 31, 2022
and 2021:
Schedule of Series A Convertible Preferred Stock Activity
| |
Number of Shares | |
Outstanding at December 31, 2020 | |
| — | |
Issued | |
| 22,776 | |
Converted to common stock | |
| — | |
| |
| | |
Outstanding at March 31, 2021 | |
| 22,776 | |
| |
| | |
Outstanding at December 31, 2021 | |
| 22,076 | |
Issued | |
| — | |
Converted to common stock | |
| (800 | ) |
| |
| | |
Outstanding at March 31, 2022 | |
| 21,276 | |
On
March 16, 2021, the Company approved and filed a Certificate of Designation of Preferences, Rights and Limitations of the Series A Convertible
Preferred Stock (“COD”). The COD provides for the issuance of up to 27,778 shares of Series A Convertible Preferred Stock
with a stated/liquidation value of $100 per share. Pursuant to the provisions of the COD, the Series A Convertible Preferred Stock is
convertible, at the option of the holders thereof, at any time, subject to certain beneficial ownership limitations, into shares of Common
Stock determined on a per share basis by dividing the $100 stated/liquidation value of such share of Convertible Preferred Stock by the
$0.32 per share conversion price, which conversion price is subject to certain adjustments. In addition, the COD provides for the payment
of 10% per annum cumulative dividends, in (i) cash, or (ii) shares of Common Stock, to the holders of the Series A Convertible Preferred
Stock based on the stated/liquidation value, until the earlier of (i) the date on which the shares of Series A Convertible Preferred
Stock are converted to common stock or (ii) date the Company’s obligations under the COD have been satisfied in full. The shares
of Series A Convertible Preferred Stock also (i) vote on an as-converted to Common Stock basis, subject to certain beneficial ownership
limitations, (ii) are subject to mandatory conversion into Common Stock upon the closing of any equity financing transaction consummated
after the original issue date, pursuant to which the Company raises gross proceeds of not less than $5,000,000, (iii) rank senior to
the Common Stock and any class or series of capital stock created after the Series A Convertible Preferred Stock and (iv) have a special
preference upon the liquidation of the Company.
On
March 26, 2021 the Company entered into a securities purchase agreement with five (5) accredited investors providing for an aggregate
investment of $2,050,000 by the investors for the issuance by the Company to them of (i) 22,776 shares of Series A Convertible Preferred
Stock, par value $0.0001 per share, with a stated/liquidation value of $100 per share; and (ii) warrants, with a term of five and a half
(5.5) years, exercisable six (6) months after issuance, to purchase an aggregate of up to 5,256,410 shares of Common Stock at an exercise
price of $0.39 per share, subject to customary adjustments thereunder. The Series A Convertible Preferred stock is convertible into an
aggregate of up to shares of Common Stock. Holders of the Warrants may exercise them by paying the applicable cash exercise
price or, if there is not an effective registration statement for the sale of the Warrant Shares within six (6) months following the
Closing Date, as defined in the Warrants, by exercising on a cashless basis pursuant to the formula provided in the Warrants. Net proceeds
from the issuance of Series A Convertible Preferred Stock totaled $1,929,089 after deducting the placement agent fee and other expenses
of the offering. The Company intends to use the proceeds of the Series A Convertible Preferred Stock offering to complete the acquisition
and development of the Properties, to pay-off the outstanding convertible notes payable (See Note 3) and for general working capital
purposes.
The
Company also entered into that certain registration rights agreement, pursuant to which the Company agreed to file a registration statement
within forty-five (45) days following the closing of the acquisition of the Properties which occurred on April 1, 2021 to register the
conversion shares and the warrant Shares. The Company is to use its best efforts to cause such registration statement to be declared
effective within forty-five (45) days after the filing thereof, but in any event no later than the ninetieth (90th) calendar
day following the closing of the acquisition of the Properties which occurred on April 1, 2021.
The
holders of the Series A Convertible Preferred Stock agreed to a 4.99% beneficial ownership cap that limits the investors’ ability
to convert its Series A Convertible Preferred Stock and/or exercise its common stock purchase warrants. Such limitation can be raised
to 9.99% upon 60 days advance notice to the Company.
The
Company has accrued and paid preferred dividends totaling $52,861
and $3,744
relative to the Series A Convertible Preferred
Stock which was charged to additional paid in capital as during the three months ended March 31, 2022 and 2021, respectively.
On
January 4, 2022, a holder of Series A Convertible Preferred Stock exercised its right to convert 500 shares of Series A Convertible Preferred
Stock into 156,250 shares of common stock. In addition, on February 11, 2022, a holder of Series A Convertible Preferred Stock exercised
its right to convert 300 shares of Series A Convertible Preferred Stock into 93,750 shares of common stock.
Note
13 – Related Party Transactions
The
Company’s Chief Operating Officer was a non-controlling member of Core. The Company acquired an Option from Core to purchase the
production and mineral rights/leasehold for the Properties. The Company paid a non-refundable deposit of $50,000 in 2019 to bind the
original Option, which gave it the right to acquire the Properties for $2.5 million prior to December 31, 2019. The Company was not able
to exercise the Option prior to December 31, 2019. On September 2, 2020, the Company acquired a new Option from Core under similar terms
as the previous Option, however the newly acquired Option permitted the Company to purchase the Properties at a reduced price of $900,000
at any time prior to November 1, 2020 and the Company agreed to immediately conduct a capital raise of between approximately $2-10 million
to fund its acquisition and development of the Properties. On December 14, 2020 the parties executed an asset purchase and sale agreement
which extended the new Option to January 11, 2021, which expired. The parties entered into the Second Side Letter agreement on March
31, 2021, pursuant to which we and Core agreed to set the closing date on which the Properties would be purchased to April 1, 2021. Pursuant
to the Second Side Letter, the Company is responsible for reimbursing Core for certain prorated revenues and expenses from January 1,
2021 through the April 1, 2021 closing date. On April 1, 2021 we completed the acquisition of the Properties, under the same terms of
the asset purchase agreement executed on December 14, 2020 which provided a purchase price of $900,000. The Company raised approximately
$2.05 million on March 26, 2021 through the issuance of convertible preferred stock with detachable common stock purchase warrants. The
funds raised pursuant to the Series A Convertible Preferred Stock issuance were used to complete the acquisition of the Properties on
April 1, 2021, to retire the outstanding convertible note payable and for working capital purposes.
The
Company does not have any employees other than its Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. In previous
years, certain general and administrative services (for which payment is deferred) had been provided by the Company’s Chief Financial
Officer’s accounting firm at its standard billing rates plus out-of-pocket expenses consisting primarily of accounting, tax and
other administrative fees. The Company no longer utilizes its Chief Financial Officer’s accounting firm for such support services
and was not billed for any such services during the years ended December 31, 2021 and 2020. On March 31, 2021 the parties entered into
a Debt Settlement Agreement whereby all amounts due to such firm for services totaling $762,407
were extinguished upon the issuance of $7,624
principal balance of 3%
Note and the issuance of warrants to purchase 1,524,814
shares of Common Stock as further described in
Notes 3, 7 and 9. Total amounts due to the related party was $-0-
as of March 31, 2022 and December 31, 2021.
The
Company had accrued compensation to its officers and directors in years prior to 2018. The Board of Directors authorized the Company
to cease the accrual of compensation for its officers and directors, effective January 1, 2018. On March 31, 2021 the parties entered
into Debt Settlement Agreements whereby all accrued amounts due for such services totaling $1,789,208
were extinguished upon the issuance of $17,892
principal balance of 3%
Convertible Promissory Note and the issuance of warrants to purchase 3,578,416
shares of Common Stock as further described in
Notes 3, 7 and 9. Total amounts due to the officers and directors related to accrued compensation was $-0-
as of March 31, 2022 and December 31, 2021.
Offshore
Finance, LLC was owed financing costs in connection with a subordinated loan to the Company which was converted to common shares in 2014.
The managing partner of Offshore and the Company’s CFO are partners in the accounting firm which the Company used for general corporate
purposes in the past. On March 31, 2021, the parties entered into a Debt Settlement Agreement whereby all amounts due for such services
totaling $26,113
were extinguished upon the issuance of $261
principal balance of 3%
Convertible Promissory Note and the issuance of warrants to purchase 52,226
shares of common stock as further described in
Notes 3, 7 and 9. Total amounts due to this related party was $-0-
as of March 31, 2022 and December 31, 2021.
Note
14 – Subsequent Events
Resignation
of Chief Operating Officer
On
April 18, 2022, John Loeffelbein resigned from his position as Chief Operating Officer with American Noble Gas, Inc. with such resignation
to be effective immediately. Mr. Loeffelbein’s resignation as an officer did not result from any disagreement with the Board.
Farmout
Agreement to Explore and Develop Unconventional Gas and Brine Materials in the Hugoton Gas Field
On
April 4, 2022, the Company acquired a 40% interest in a Farmout Agreement with an entity that controls significant oil and gas interests
in the Hugoton Gas Field, located in Haskell and Finney Counties, Kansas. AMGAS will participate with three other partners in the Farm-Out
Agreement to explore and develop its interests in Haskell and Finney County, Kansas (the “Hugoton Farm-Out Venture”).
The
Farmout Agreement covers drilling and completion of up to 50 wells, with the first exploratory well spudded on May 7, 2022 and
is expected to be completed in May 2022. The Hugoton Farm-Out Venture will utilize existing infrastructure assets including water disposal,
gas gathering and helium processing. The Farmout Agreement provides the Hugoton Farm-Out Venture with rights to take in-kind and market
its share of helium at the tailgate of Jayhawk Gas Plant, which will enable the Hugoton Farm-Out Venture to market and sell the helium
produced at prevailing market prices.
The
Hugoton Farm-Out Venture also acquired the right to all brine minerals subject to a ten percent (10%) royalty to the counter-party, across
Finney and Haskell Counties. Brine minerals are harvested from the formation water produced from active, and to be drilled, oil and gas
wells and may include a variety of dissolved minerals including bromine and iodine. The Hugoton Farm-Out Venture plans to target brine
minerals with commercial quantities of bromine and iodine. AMGAS is currently developing proprietary technology to recover brine minerals,
particularly with respect to bromine, which is well underway and has demonstrated recovery efficiency and is expected to be available
for use in existing and future development wells.
The
first exploratory well commenced on May 7, 2022 near Garden City, Kansas with a goal to evaluate two Chase group formations.
The Hugoton Farm-Out Venture is testing an unconventional theory regarding these two Chase group formations that have not previously
been targeted for exploration by historical operations in the field.
The
exploration and development activity will be directed and coordinated under the terms of the USNG Letter Agreement entered in November
2021 with input from the newly formed Advisory Board of directors whose members all have extensive experience in developing shale resources
and noble gas and rare earth mineral reserves.
John
Loeffelbein, the Company’s previous Chief Operating Officer was granted a 3% carried interest through drilling in the Hugoton Farmout
Venture. Such carried interest was burdened only to the three other partners in the Hugoton Farm-Out Venture and not the Company’s
interest.
Letter
of Engagement
On
April 1, 2022, the Company engaged Univest Securities, LLC (“Univest”) to act as the exclusive financial advisor, and the
lead underwriter in a public offering (the “Offering”), to the Company. The size of the Offering is expected to be between
$10,000,000
to $15,000,000,
with a goal to up-list the Company onto the Nasdaq Capital Market upon closing of the Offering. The price per share
will be determined by mutual agreement of the Company and Univest and will be determined at the signing of the final Underwriting
Agreement, which will based on, among other things, market conditions at the time of the Offering.
Pursuant
to the Underwriting Agreement, Univest will act as principal, or the representative of a number of broker-dealers that will offer the
securities in a public offering. The Letter of Engagement anticipates that Univest will receive a gross discount equal to eight percent
(8%) of the public offering price on each of the securities being offered. Univest has agreed to negotiate in good faith with other underwriters
who, acting severally, could contract to act as an Underwriter in connection with the sale of the securities being offered. Univest will
also have the right to re-offer all or any part of the securities being offered to broker- dealers. Univest will be entitled to warrants
to purchase common stock representing 5% of the amount of securities sold in the Offering with an exercise price determined to be 110%
of the Offering Price.
The
Company also agreed to reimburse Univest, at and out of the proceeds of the Offering closings, for all of its reasonable, out-of-pocket
expenses (including, but not limited to, travel, due diligence expenses, reasonable fees and expenses of its legal counsel, roadshow
and background check on the Company’s principals) in connection with the performance of its services hereunder not to exceed an
aggregate of $150,000. In addition, at the closing of the Offering, the Company agreed to reimburse Univest one percent (1%) of the actual
amount of the Offering as nonaccountable expense of the offering.
The
term of the Letter of Engagement Agreement expires upon the earlier to occur of (i) six (6) months from the date of execution or (ii)
the mutual written agreement of the Company and Univest.
Investment
in GMDOC, LLC
On
May 3, 2022, the Company entered into an operating agreement (the “Operating Agreement”) pursuant to which the Company acquired
17 (or 60.7143%) of 28 limited liability membership interests (the “Interests”) in GMDOC, LLC, a Kansas limited liability
company (“GMDOC”), for an aggregate purchase price of $4,037,500, and was subsequently admitted as a member of GMDOC.
GMDOC
had previously acquired 70% of the working interests (the “Acquisition”) in certain oil and gas leases (the “GMDOC
Leases”) from Castelli Energy, L.L.C, an Oklahoma limited liability company. The GMDOC Leases cover approximately 10,000 acres
located in Southern Kansas near the Oklahoma border. The GMDOC Leases currently produce approximately 100 barrels of oil per day and
1.2 million cubic feet of natural gas per day, on a gross basis.
GMDOC
is managed by two other members – Darrah Oil Company, LLC, a Kansas limited liability company, and Grand Mesa Operating Company,
a Kansas corporation (the “Managing Members”) – each of which also serve as the operating companies under the GMDOC
Leases.
Pursuant
to the terms of the Operating Agreement, each member agreed to pay GMDOC, as its capital contribution, $50,000 in cash per Interest,
with the remainder to be financed, in part, by a loan to GMDOC from a bank, secured by GMDOC’s property, in the aggregate amount
of $5,400,000, which is to be repaid in 84 equal monthly installments and bears interest at a rate of 6% per annum. The remainder of
each member’s capital contribution and initial working capital for GMDOC will be financed, in part, by a loan to GMDOC from a Managing
Member, in the aggregate amount of $400,000, which is to be repaid equally over 12 months and bears interest at a rate of 6% per annum.
With
respect to its cash capital contribution, the Company paid a non-refundable cash deposit for the Interests in the amount of $50,000 on
May 3, 2022 and the Company will pay the remainder of the cash contribution for the Interests, or $800,000, on or before the close of
business on May 17, 2022. The remainder of the Company’s capital contribution, or $3,187,500, will be financed by the bank loan
and the member loan.
Conversion
of Series A Convertible Preferred Stock to Common Stock.
On April 28, 2022, a holder of Series A Convertible
Preferred Stock exercised its right to convert 650 shares of Series A Convertible Preferred Stock into 203,125 shares
of common stock.
**********************