Filed
Pursuant to Rule 424(b)(3)
Registration
No. 333-275313
PROSPECTUS
Up
to 11,428,572 shares of Common Stock
Issuable
upon Conversion of a Senior Secured Convertible Promissory Note
Up
to 1,733,404 shares of Common Stock
Issuable
upon Exercise of a Common Warrant
Up
to 83,333 shares of Common Stock
Issuable
upon Exercise of a Placement Agent Warrant
Trio
Petroleum Corp.
This
prospectus relates to the resale from time to time, by an institutional investor (the “Investor”) identified in this prospectus
under the caption “Selling Stockholders,” of (i) up to up to 11,428,572 shares of common stock, par value $0.0001 per share
of Trio Petroleum Corp. (the “Common Stock”), which the Investor may acquire upon the conversion of a senior secured convertible
promissory Note (the “Note”) and (ii) up to 1,733,404 shares of Common Stock,
which the Investor may acquire upon the exercise of an outstanding warrant (the “Common Warrant”).
We issued the Note and the Warrants to the Selling Stockholders in a private placement offering (the “Private Placement”),
pursuant to the terms and condition of a securities purchase agreement, dated as of October 4, 2023, by and between the Company
and the Investor (the “Securities Purchase Agreement”). In addition, this prospectus also relates to the resale from time
to time, by Spartan Capital Securities LLC (the “Placement Agent”), the placement agent, in connection with the offering
described in the Securities Purchase Agreement (the “Convertible Note Offering”), of up to 83,333 shares of Common Stock,
which the Placement Agent may acquire upon the exercise of an outstanding warrant issued to the Placement Agent for its services relating
to the Private Placement (the “Placement Agent Warrant” and collectively with the Common Warrant, the “Warrants”).
The Investor and the Placement Agent are sometimes collectively referred to in this prospectus as the “Selling Stockholders.”
The
Selling Stockholders and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of the shares
of Common Stock issuable (i) to the Investor upon conversion of the Note (the “Conversion Shares”) and/or exercise of the
Investor Warrant (the “Common Warrant Shares”) and (ii) to the Placement Agent upon exercise of the Placement Agent Warrant
(the “Placement Agent Warrant Shares” and collectively with the Conversion Shares and the Placement Agent Warrant Shares,
the “Resale Securities”) on the principal trading market or any other stock exchange, market or trading facility on which
the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. See “Plan of Distribution”
in this prospectus for more information. We will not receive any proceeds from the resale or other disposition of the shares of Common
Stock by the Selling Stockholders. However, we will receive the proceeds of any cash exercise of the Warrants. See “Use of Proceeds”
beginning on page 27 and “Plan of Distribution” beginning on page 31 of this prospectus for more information.
Our
Common Stock is listed on the NYSE American (“NYSE American”) under the symbol “TPET.” On December 5,
2023, the last reported sale price of our Common Stock was $ 0.325 per share.
We
are an “emerging growth company” and a “smaller reporting company,” each as defined under the federal securities
laws and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and future
filings. See “Prospectus Summary—Implications of Being an Emerging Growth Company and a Smaller Reporting Company.”
Investing
in our Common Stock involves a high degree of risk. Before buying any shares, you should carefully read the discussion of the material
risks of investing in our Common Stock under the heading “Risk Factors” beginning on page 12 of this prospectus.
Neither
the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of
these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The securities are not being offered in any jurisdiction where the offer is not permitted.
The
date of this prospectus is December 15, 2023
This
prospectus contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our
control. See “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”
FINANCIAL
STATEMENT PRESENTATION
The
financial statements for the period of July 19, 2021 (inception) through October 31, 2021, for the year ended October 31, 2022 and for
the nine months ended July 31, 2023 (unaudited), represent the operations of Trio Petroleum Corp., which does not have subsidiaries.
ABOUT
THIS PROSPECTUS
Except
where the context otherwise requires or where otherwise indicated, the terms “Trio Petroleum,” “we,” “us,”
“our,” “our company,” “Company” and “our business” refer to Trio Petroleum Corp.
PROSPECTUS
SUMMARY
This
summary highlights, and is qualified in its entirety by, the more detailed information and financial statements included elsewhere
in this prospectus. This summary does not contain all of the information that may be important to you in making your investment
decision. You should read this entire prospectus carefully, especially the “Risk Factors” section beginning on page
12 and our financial statements and the related notes included elsewhere in this prospectus, before making an
investment decision.
Business
Overview
We
are an oil and gas exploration and development company headquartered in Bakersfield, California, with operations in Monterey County,
California. The Company was incorporated on July 19, 2021, under the laws of Delaware to acquire, fund and develop oil exploration and
production assets in California. We have no revenue-generating operations as of the date of this prospectus. The Company was formed to
acquire Trio Petroleum LLC’s (“Trio LLC”) approximate 82.75% working interest, which was subsequently increased to
an approximate 85.75% working interest, in the large, approximately 9,300 acre South Salinas Project located in Monterey, California
(the “South Salinas Project”), and subsequently partner with certain members of Trio LLC’s management team to develop
and operate those assets. Trio LLC holds an approximate 3.8% working interest in the South Salinas Project. We hold an approximate 68.6%
interest after the application of royalties (“net revenue interest”) in the South Salinas Project.
For
the period from July 19, 2021 (inception) through October 31, 2021, we generated no revenues, reported a net loss of $102,064, and cash
flow used in operating activities of $258,923. For the year ended October 31, 2022, we generated no revenues, reported a net loss of
$3,800,392 and cash flows used in operating activities of $502,144. For the nine months ended July 31, 2023, we generated no revenues,
reported a net loss of $5,224,839 and cash flows used in operating activities of $2,542,360. As of July 31, 2023, we had an accumulated
deficit of $9,127,295. There is substantial doubt regarding our ability to continue as a going concern as a result of our accumulated
deficit and no source of revenue sufficient to cover our cost of operation as well as our dependence on private equity and financings.
See “Risk Factors—Risks Relating to Our Business—We have a history of operating losses, our management has concluded
that factors raise substantial doubt about our ability to continue as a going concern and our auditor has included an explanatory paragraph
relating to our ability to continue as a going concern in its audit report for the year ended October 31, 2022 and for the period from
July 19, 2021 (inception) through October 31, 2021.”
Recent
Development
On
October 16, 2023, we entered into an Agreement for Purchase and Sale of an Undivided Interest (the “McCool Ranch Purchase Agreement”)
in the McCool Ranch Oil Field (the “McCool Ranch Oil Field”) with Trio LLC. Pursuant to the McCool Ranch Purchase Agreement,
effective October 1, 2023, we acquired an approximate 22% working interest undivided interest in and to certain oil and gas assets at
the McCool Ranch Oil Field, which is located in Monterey, County, California, just seven miles from our flagship South Salinas Project.
The acquired property is a relatively new oil field developed with six oil wells, one water-disposal
well, steam generator, boiler, three 5,000 barrel tanks, 250 barrel test tank, water softener, two freshwater tanks, two soft water tanks,
in-field steam pipelines, oil pipelines and other facilities. The property is fully and properly permitted for oil and gas production,
cyclic-steam injection and water disposal and is currently idle. We are acquiring the working interests at the McCool Ranch Oil
Field through work commitment expenditures that will be allocated to restart production at the field and
establish cash flow for us, with upside potential given the numerous undrilled infill and development well locations. See “Business
– Recent Developments” for further information on our acquisition of working interests in the McCool Ranch Oil Field.
Market
Opportunity
We
believe that we can establish a profitable niche in oil and gas production due to the unique characteristics and the robustness of California’s
energy market. As of 2021, by production volume, California ranks as the country’s 6th oil producing state and its 8th
overall oil and gas producing state. In addition, it is the country’s second largest energy consumer and the country’s
largest consumer of gasoline and jet fuel. However, in spite of the richness of California’s oil/gas resources, it imports approximately
70% of the oil it needs, with foreign sources supplying almost 60%, up from 15% just twenty years ago.
The
South Salinas Project offers an opportunity to profitably help supply California’s demanding oil and gas needs while supporting
the country’s goal of energy independence, the local and state economies with tax revenue and jobs, the protection of marine environments
by reducing the need for oil-tanker traffic along the state’s Pacific Ocean coastline, and helping to reduce the negative Environmental-Social-Governance
costs and burdens that are associated with imported foreign oil and gas. The Probable (P2) Undeveloped reserves in the South Salinas
Project, net to Trio Corp, are an estimated 39 million barrels of oil plus 40 billion cubic feet of gas, or 45.7 million oil-equivalent
barrels, whereas the Possible (P3) Undeveloped reserves in the South Salinas Project, net to Trio Corp, are an estimated 92 million barrels
of oil plus 148.8 billion cubic feet of gas, or 117.2 million oil-equivalent barrels (see below Part “E” of the Table, Estimated
Undeveloped Reserves and Cash Flow).
Table
1: Estimated Undeveloped Reserves and Cash Flow
ESTIMATED
UNDEVELOPED RESERVES AND CASH FLOW
| A. | |
Phase 1 Undeveloped Reserve Categories | |
Net Trio Undeveloped Oil Reserves (Stock Tank Barrels) | | |
Net Trio Undeveloped Gas Reserves (1000 CF, or MCF) | | |
Net Trio Undeveloped Reserves (Barrel of Oil Equivalent) | | |
Trio Undiscounted Net Cash Flow ($) | | |
Trio Net Cash Flow Discounted at 10% ($) | |
| | |
Probable (P2) Undeveloped of Limited Phase 1 | |
| 1,975,000.0 | | |
| 2,022,900.0 | | |
| 2,312,150.0 | | |
$ | 95,573,000.00 | | |
$ | 28,194,000.00 | |
| | |
Possible (P3) Undeveloped of Limited Phase 1 | |
| 3,742,000.0 | | |
| 6,732,400.0 | | |
| 4,864,066.7 | | |
$ | 262,325,000.00 | | |
$ | 108,855,000.00 | |
| B. | |
Phase 2 Undeveloped Reserve Categories | |
Net Trio Oil Reserves (Stock Tank Barrels) | | |
Net Trio Gas Reserves (1000 CF, or MCF) | | |
Net Trio Reserves (Barrel of Oil Equivalent) | | |
Trio Undiscounted Net Cash Flow ($) | | |
Trio Net Cash Flow Discounted at 10% ($) | |
| |
Probable (P2) Undeveloped of Limited Phase 2 | |
| 3,123,900.0 | | |
| 3,206,800.0 | | |
| 3,658,366.7 | | |
$ | 145,127,000.00 | | |
$ | 34,001,000.00 | |
| | |
Possible (P3) Undeveloped of Limited Phase 2 | |
| 7,258,300.0 | | |
| 11,603,200.0 | | |
| 9,192,166.7 | | |
$ | 499,464,000.00 | | |
$ | 174,621,000.00 | |
| C. | |
Undeveloped Reserve Category by Development Plan Phase, for Limited Phases 1 & 2 | |
Net Trio Oil Reserves (Stock Tank Barrels) | | |
Net Trio Gas Reserves (1000 CF, or MCF) | | |
Net Trio Reserves (Barrel of Oil Equivalent) | | |
Trio Undiscounted Net Cash Flow ($) | | |
Trio Net Cash Flow Discounted at 10% ($) | |
| | |
Probable (P2) Undeveloped of Limited Phase 1 | |
| 1,975,000.0 | | |
| 2,022,900.0 | | |
| 2,312,150.00 | | |
$ | 95,573,000.00 | | |
$ | 28,194,000.00 | |
| | |
Probable (P2) Undeveloped of Limited Phase 2 | |
| 3,123,900.0 | | |
| 3,206,800.0 | | |
| 3,658,366.67 | | |
$ | 145,127,000.00 | | |
$ | 34,001,000.00 | |
| | |
Total Probable (P2) Undeveloped of Limited Phases 1 & 2 | |
| 5,098,900.0 | | |
| 5,229,700.0 | | |
| 5,970,516.67 | | |
$ | 240,700,000.00 | | |
$ | 62,195,000.00 | |
| D. | |
Undeveloped Reserve Category by Development Plan Phase, for Limited Phases 1 & 2 | |
Net Trio Oil Reserves (Stock Tank Barrels) | | |
Net Trio Gas Reserves (1000 CF, or MCF) | | |
Net Trio Reserves (Barrel of Oil Equivalent) | | |
Trio Undiscounted Net Cash Flow ($) | | |
Trio Net Cash Flow Discounted at 10% ($) | |
| | |
Possible (P3) Undeveloped of Limited Phase 1 | |
| 3,742,000.0 | | |
| 6,732,400.0 | | |
| 4,864,066.67 | | |
$ | 262,325,000.00 | | |
$ | 108,855,000.00 | |
| | |
Possible (P3) Undeveloped of Limited Phase 2 | |
| 7,258,300.0 | | |
| 11,603,200.0 | | |
| 9,192,166.67 | | |
$ | 499,464,000.00 | | |
$ | 174,621,000.00 | |
| | |
Total Possible (P3) Undeveloped of Limited Phases 1 & 2 | |
| 11,000,300.0 | | |
| 18,335,600.0 | | |
| 14,056,233.33 | | |
$ | 761,789,000.00 | | |
$ | 283,476,000.00 | |
| E. | |
Undeveloped Reserve Category for Entire Project, Full Field Development | |
Net Trio Oil Reserves (Stock Tank Barrels) | | |
Net Trio Gas Reserves (1000 CF, or MCF) | | |
Net Trio Reserves (Barrel of Oil Equivalent) | | |
Trio Undiscounted Net Cash Flow ($) | | |
Trio Net Cash Flow Discounted at 10% ($) | |
| |
Total Probable (P2) Undeveloped: Entire Project, Full Field Development | |
| 38,996,000.0 | | |
| 39,963,900.0 | | |
| 45,656,650.00 | | |
$ | 1,844,194,000.00 | | |
$ | 407,595,000.00 | |
| | |
Possible (P3) Undeveloped: Entire Project, Full Field Development | |
| 92,376,000.0 | | |
| 148,778,400.0 | | |
| 117,172,400.00 | | |
$ | 6,356,981,000.00 | | |
$ | 1,998,235,000.00 | |
Reasonable Expectations of Reserve Analyses
This prospectus provides a summary
of risks and detailed discussions of risks relating to our business and risks related to this offering. The Company recognizes these
risks as being real and substantial. Nevertheless, the Company has reasonable expectations that the Company’s South Salinas Project
will prove to have reserves approximately as estimated, that the Company will have adequate funding to develop the reserves, and that
there will exist the legal right to develop the Company’s reserves in South Salinas Project, including the rights to full-field
development, to long-term production and to deliver natural gas to market via pipeline, recognizing as discussed elsewhere hereunder
that there may be project delays and/or obstacles related to obtaining necessary permits from regulatory agencies. Furthermore and more
specifically, the Company has a reasonable expectation that the primary governmental regulatory agencies that are currently and/or that
will be involved in the permitting processes, which agencies will primarily be CalGEM, State Water Boards and Monterey County, will determine
to approve the Company’s applications for permits for various reasons that are discussed elsewhere in this prospectus. See “Risks
Relating to Our Business - We may face delays and/or obstacles in project development due to difficulties in obtaining necessary
permits from federal, state, county and/or local agencies, which may materially affect our business;” “Risks Relating to
Our Business - We face substantial uncertainties in estimating the characteristics of our prospects, so you should not place undue reliance
on any of our measures;” “Risks Relating to Our Business - The drilling of wells is speculative, often involving significant
costs that may be more than our estimates, and drilling may not result in any discoveries or additions to our future production or future
reserve; “Risks Relating to Our Business - Any material inaccuracies in drilling costs, estimates or underlying assumptions will
materially affect our business;” “Risks Relating to Our Business - Seismic studies do not guarantee that oil or gas is present
or, if present, will produce in economic quantities; and “Risks Relating to Our Business - We are subject to numerous risks inherent
to the exploration and production of oil and natural gas.”
Business
Strategies
Our
primary objective is to develop our existing leasehold at the South Salinas Project and the McCool Ranch Oil Field and to acquire and
develop other opportunities for oil and gas production in California and elsewhere. Our current focus for drilling wells is principally
in California, but we are also considering economically attractive out-of-state oil and gas opportunities.
Earlier
this year we commenced and accomplished the drilling of our HV-1 confirmation well at the Presidents Oilfield in the South Salinas Project.
The Presidents Oilfield is a large geologic structure, and a potential large oil and gas field, where Trio LLC drilled the HV-3A discovery
well in 2018. Reservoir objectives in the HV-1 well were encountered largely as predicted including
with respect to depth, thickness, lithology, wireline-log characteristics and oil and gas shows including free oil in cuttings
and in the mud pit. The Company believes that the HV-1 well has confirmed that there is a major
oil and gas accumulation in the Presidents Oil Field, as the Company announced in a press release on May
16, 2023. However, confirmation of a major oil and gas accumulation by itself does not confirm whether economic oil/gas production can
be established. The HV-1 well is currently being production tested to evaluate commerciality. Production testing at the HV-1 well is
currently being carried-out from the bottom up (i.e., by testing the deepest zone first and working upward to shallower zones). Initial
testing of the Mid-Monterey Clay, which is the deepest zone penetrated in the HV-1 well, and of the overlying Brown Zone, has been carried-out.
Testing of the Yellow Zone, which overlies the Brown Zone, commenced on October 24, 2023, and the results of this testing will be disclosed
when available. Oil and gas were produced during the testing of both the Mid-Monterey Clay and the Brown Zone but as of the date of this
filing a determination has not yet been made as to whether the HV-1 well is capable of commercial oil/gas production.
In
addition to the aforementioned HV-1 well, the Company holds drilling permits issued by Monterey County for two additional wells (i.e.,
the HV-2 well and HV-4 well). These wells are expected to be drilled during the fourth quarter of 2023 or the first quarter of 2024.
In such case, it is possible that the South Salinas Project may have three producing wells in early 2024, which may largely confirm favorable
project economics and underpin an aggressive permitting and subsequently an aggressive drilling and development program. The Company’s
investment in the McCool Ranch Oil Field is also expected to restart production and generate cash flow.
The
primary goal is to grow the Company into a highly profitable, independent oil and gas company.
Trio
LLC’s Services as an Operator in California
Trio
LLC is a licensed Operator in California currently operates the South Salinas Project on behalf of the Company the other working interest
partners. Trio LLC operates the South Salinas Project pursuant to a Joint Operating Agreement dated February 1, 2004 (“JOA”),
by and among Trio Petroleum Inc. (the predecessor corporation to Trio LLC), as Operator, and other working interest parties (“Non-Operators”).
The parties to the JOA agreement are partial owners of the oil and gas leases and/or oil and gas interests in the South Salinas Project
and the parties agreed to have the Operator explore and develop these leases and/or interests for the production of oil and gas as provided
therein. Trio LLC, as Operator, generally conducts and has full control of the operations and acts in the capacity of an independent
contractor. Operator is obligated to conduct its activities under the JOA as a reasonable prudent operator, in good workmanlike manner,
with due diligence and dispatch, in accordance with good oilfield practices, and in compliance with applicable laws and regulations.
Trio LLC currently holds a 3.8% working interest in the South Salinas Project and the Company holds an 85.75% working interest. On
April 19, 2023, Trio LLC entered into the Drilling Bid Proposal and Daywork Drilling Contract
– U.S. (the “Drilling Contract”) with Ensign United States Drilling (California) Inc. (“Ensign”).
pursuant to which the HV-1 well was successfully drilled and completed.
Trio
LLC has significant prior experience in oil and gas operations, exploration and production in California and an experienced management
team. Some of the members of Trio LLC’s management team are also senior executives of the Company.
Our
Growth Strategy
The
Company plans to build and grow a substantial independent oil and gas company by developing and producing the South Salinas Project and
the McCool Ranch Oil Field, and by acquiring and developing other oil and gas opportunities. The Company’s management believes
that oil and gas reserves at the South Salinas Project alone may be sufficient to generate revenue resulting in the Company’s becoming
a highly profitable, independent oil and gas company. However, the Company continues to evaluate other oil and gas projects that are
candidates for acquisition.
Competition
There
are many large, medium, and small-sized oil and gas companies and third-parties that are our competitors. Some of these competitors have
extensive operational histories, experienced oil and gas industry management, profitable operations, and significant reserves and funding
resources. Our efforts to acquire additional oil/gas properties in California and elsewhere may be met with competition.
Government
Regulation
We
are subject to a number of federal, state, county and local laws, regulations and other requirements relating to oil and natural gas
operations. The laws and regulations that affect the oil and natural gas industry are under constant review for amendment or expansion.
Some of these laws, regulations and requirements result in challenges, delays and/or obstacles in obtaining permits, and some carry substantial
penalties for failure to comply. The regulatory burden on the oil and natural gas industry increases our cost of doing business, can
affect and even obstruct our operations and, consequently, can affect our profitability These burdens include regulations relating to
transportation of oil and gas, drilling and production and other regulatory matters. See “Business – Government Regulation”
beginning on page 46.
Summary
of Risk Factors
Investing
in our Common Stock involves risks. In addition, our business and operations are subject to a number of risks, which you should be aware
of prior to making a decision to invest in our Common Stock. These risks are discussed more-fully in the “Risk Factors” section
of this prospectus immediately following this prospectus summary. Below is a summary of these risks.
Risks
Relating to Our Business
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● |
We have a history of operating
losses, our management has concluded that factors raise substantial doubt about our ability to continue as a going concern and our
auditor has included an explanatory paragraph relating to our ability to continue as a going concern in its audit report for the
year ended October 31, 2022 and for the period from July 19, 2021 (inception) through October 31, 2021. |
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● |
We may face delays and/or
obstacles in project development due to difficulties in obtaining necessary permits from federal, state, county and/or local agencies,
which may materially affect our business. |
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Our business and operations
were adversely affected by, and may continue to be adversely affected by the COVID-19 pandemic and may be adversely affected by other
similar outbreaks. |
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Due
to our contractor model for drilling operations, we will be vulnerable to any inability to engage one or more drilling rigs and associated
drilling personnel. |
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We
are operating in a highly capital-intensive industry, and any sales of produced oil and gas may be insufficient to fund, sustain,
or expand revenue-generating operations. |
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We
face substantial uncertainties in estimating the characteristics of our prospects, so you should not place undue reliance on any
of our measures. |
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● |
The
drilling of wells is speculative, often involving significant costs that may be more than our estimates, and drilling may not result
in any discoveries or additions to our future production or future reserves. Any material inaccuracies in drilling costs, estimates
or underlying assumptions will materially affect our business. |
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We
have been an exploration stage entity and our future performance is uncertain. |
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We
are dependent on certain members of our management and technical team. |
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Seismic
studies do not guarantee that oil or gas is present or, if present, will produce in economic quantities. |
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The
potential lack of availability of, or cost of, drilling rigs, equipment, supplies, personnel, and crude oil field services could
adversely affect our ability to execute on a timely basis exploration and development plans within any budget. |
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● |
Our
business plan requires substantial additional capital, which we may be unable to raise on acceptable terms in the future, which may
in turn limit our ability to develop our exploration, appraisal, development and production activities. |
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A
substantial or extended decline in global and/or local oil and/or natural gas prices may adversely affect our business, financial
condition and results of operations. |
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Unless
we replace our oil reserves, our reserves and production will decline over time. Our business is dependent on our successful development
of the South Salinas Project and/or on continued successful identification of other productive fields and prospects, whereas the
identified locations in which we drill in the future may not yield oil or natural gas in commercial quantities. |
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Our
inability to access appropriate equipment and infrastructure in a timely manner may hinder our access to oil and natural gas markets
or delay our future oil and natural gas production. |
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We
are subject to numerous risks inherent to the exploration and production of oil and natural gas. |
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We
are subject to drilling and other operational environmental hazards. |
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The
development schedule of oil and natural gas projects, including the availability and cost of drilling rigs, equipment, supplies,
personnel and oilfield services, is subject to delays and cost overruns. |
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Participants
in the oil and gas industry are subject to numerous laws that can affect the cost, manner or feasibility of doing business. |
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We
and our operations are subject to numerous environmental, health and safety regulations which may result in material liabilities
and costs. |
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We
expect continued and increasing attention to climate change issues and associated regulations to constrain and impede the oil/gas
industry. |
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We may incur
substantial losses and become subject to liability claims as a result of future oil and natural gas operations, for which we may
not have adequate insurance coverage. |
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We may be subject to risks
in connection with acquisitions and the integration of significant acquisitions may be difficult. |
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If we fail to realize the
anticipated benefits of a significant acquisition, our results of operations may be adversely affected. |
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The requirements of being
a public company may strain our resources, result in more litigation and divert management’s attention. |
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We are subject to the examination
of our tax returns and other tax matters by the U.S. Internal Revenue Service, states in which we conduct business, and other tax
authorities. If our effective tax rates were to increase, or if the ultimate determination of our taxes owed is for an amount in
excess of amounts previously accrued, our financial condition, operating results and cash flows could be materially adversely affected. |
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Our amended and restated
certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for
substantially all disputes between us and our shareholders, which could limit its stockholders’ ability to obtain a favorable
judicial forum for disputes with us or our directors, officers or other employees. |
Risks
Relating to This Offering
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● |
There can be no assurance
that an active and liquid trading market for our Common Stock will continue or that we will be able to continue to comply with the
NYSE American’s continued listing standards. |
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Our share price may be
volatile, and purchasers of our Common Stock could incur substantial losses. |
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A substantial portion of
our total issued and outstanding shares may be sold into the market at any time. This could cause the market price of our Common
Stock to drop significantly, even if our business is doing well. |
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The concentration of our
share capital ownership among our largest shareholders, and their affiliates, will limit your ability to influence corporate matters. |
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Our Common Stock may be
subject to the “penny stock” rules in the future. It may be more difficult to resell securities classified as “penny
stock.” |
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Certain of our executive
officers and directors have significant duties with, and spend significant time serving, entities that may compete with us in seeking
acquisitions and business opportunities and, accordingly, may have conflicts of interest in allocating time or pursuing business
opportunities. |
| |
|
|
| |
● |
For as long as we are an
emerging growth company, we will not be required to comply with certain reporting requirements, including those relating to accounting
standards and disclosure about our executive compensation, that apply to other public companies. |
| |
|
|
| |
● |
We do not intend to pay
dividends on our Common Stock and, consequently, your only opportunity to achieve a return on your investment is if the price of
our shares appreciates. |
Implications
of Being an Emerging Growth Company and a Smaller Reporting Company
We
qualify as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).
As an “emerging growth company” we may take advantage of reduced reporting requirements that are otherwise applicable to
public companies. These provisions include, but are not limited to:
| |
● |
the
option to present only two years of audited financial statements and only two years of related “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” in this prospectus; |
| |
|
|
| |
● |
not
being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the
“Sarbanes-Oxley Act”); |
| |
|
|
| |
● |
not
being required to comply with any requirements that may be adopted by the Public Company Accounting Oversight Board regarding mandatory
audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial
statements (i.e., an auditor discussion and analysis); |
| |
|
|
| |
● |
reduced
disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and |
| |
|
|
| |
● |
exemptions
from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute
payments not previously approved. |
We
may take advantage of these provisions until October 31, 2028, which is the last day of our fiscal year following the fifth anniversary
of the consummation of our initial public offering (“IPO”). However, if any of the following events occur prior to the end
of such five-year period, (i) our annual gross revenue exceeds $1.235 billion, (ii) we issue more than $1.0 billion of non-convertible
debt in any three-year period, or (iii) we become a “large accelerated filer,” (as defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)), we will cease to be an emerging growth company prior to the end of
such five-year period. We will be deemed to be a “large accelerated filer” at such time that we (a) have an aggregate worldwide
market value of common equity securities held by non-affiliates of $700.0 million or more as of the last business day of our most recently
completed second fiscal quarter, (b) have been required to file annual and quarterly reports under the Exchange Act for a period of at
least 12 months and (c) have filed at least one annual report pursuant to the Exchange Act. Even after we no longer qualify as an emerging
growth company, we may still qualify as a “smaller reporting company,” which would allow us to take advantage of many of
the same exemptions from disclosure requirements including reduced disclosure obligations regarding executive compensation in this prospectus
and our periodic reports and proxy statements.
We
have elected to take advantage of certain of the reduced disclosure obligations in the registration statement of which this prospectus
is a part (the “Registration Statement”) and may elect to take advantage of other reduced reporting requirements in future
filings. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting
companies in which you hold equity interests.
We
are also a “smaller reporting company” as defined in the Securities Exchange Act of 1934, as amended, or the Exchange Act,
and have elected to take advantage of certain of the scaled disclosures available to smaller reporting companies. To the extent that
we continue to qualify as a “smaller reporting company” as such term is defined in Rule 12b-2 under the Exchange Act, after
we cease to qualify as an emerging growth company, certain of the exemptions available to us as an “emerging growth company”
may continue to be available to us as a “smaller reporting company,” including exemption from compliance with the auditor
attestation requirements pursuant to SOX and reduced disclosure about our executive compensation arrangements. We will continue to be
a “smaller reporting company” until we have $250 million or more in public float (based on our Common Stock) measured as
of the last business day of our most recently completed second fiscal quarter or, in the event we have no public float (based on our
Common Stock) or a public float (based on our Common Stock) that is less than $700 million, annual revenues of $100 million or more during
the most recently completed fiscal year.
In
addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with
new or revised accounting standards. We have elected to take advantage of this extended transition period.
Corporate
Information
We
were formed as a Delaware corporation in July 2021. Our principal executive office and operations are located at 5401 Business Park,
Suite 115 Bakersfield, CA 93309 and our telephone number is (661) 324-3911. Our website address is www.trio-petroleum.com. The
information contained in, or accessible through, our website does not constitute a part of this prospectus. We have included our website
address in this prospectus solely as an inactive textual reference.
The
Offering
| Common
Stock offered by the Selling Stockholders |
|
Up to 11,428,572 shares of Common Stock issuable
upon conversion of the Note; Up to 1,733,404 shares of Common Stock issuable upon exercise of the Common Warrant; and Up to 83,333 shares
of Common Stock issuable upon exercise of the Placement Agent Warrant. |
| |
|
|
| Shares
of Common Stock outstanding after the completion of this offering |
|
44,040,029 shares (1) |
| |
|
|
| Use
of proceeds |
|
We
will not receive any proceeds from the resale or other disposition of the shares of Common Stock by the Selling Stockholders. However,
we will receive the proceeds of any cash exercise of the Warrants. We intend to use the net proceeds from any cash exercise of the
Warrants for working capital and general corporate purposes. See “Use of Proceeds.” |
| |
|
|
| Risk
factors |
|
You
should read the section titled “Risk Factors” beginning on page 12 and the other information included in this
prospectus for a discussion of factors you should consider carefully before deciding to invest in our Common Stock. |
| |
|
|
| Dividend policy |
|
We
do not currently pay dividends and we do not anticipate declaring or paying any dividends for the foreseeable future. |
| |
|
|
| Market for Common Stock |
|
Our
Common Stock is listed on NYSE American under the symbol “TPET.” On December 5, 2023, the last reported sale price
of our Common Stock was $0.325 per share. |
| |
(1) |
The
number of shares of our Common Stock to be outstanding after this offering is based on 30,794,720 shares of our Common Stock
outstanding as of December 5, 2023 and assumes full conversion of the Note, at a conversion rate equal to the floor price
of $0.35, full exercise of the Warrants and registration of 200% of the shares of Common Stock convertible under the Note and the
Common Warrant. |
SUMMARY
FINANCIAL DATA
The
following tables set forth our summary financial data for the periods indicated. We have derived the statements of operations data for
the year ended October 31, 2022 and the period of July 19, 2021 (inception) to October 31, 2021, and the balance sheet data as of October
31, 2022 and 2021, from our audited financial statements included elsewhere in this prospectus. The statement of operations data as of
and for the nine months ended July 31, 2023 and 2022 and the balance sheet data as of July 31, 2023 is derived from our unaudited financial
statements.
We
have prepared the unaudited financial statements on the same basis as the audited financial statements and have included all adjustments,
consisting only of normal recurring adjustments that, in our opinion, are necessary to state fairly the financial information set forth
in those statements. Our historical results are not necessarily indicative of the results that should be expected for any future period.
You should read the following summary financial data together with the more detailed information contained in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included
elsewhere in this prospectus.
| | |
Year Ended
October 31, 2022 | | |
For the
Period From
July 19, 2021
(Inception) Through
October 31, 2021 | | |
Nine Months Ended
July 31, 2023 | | |
Nine Months Ended
July 31, 2022 | |
| Operating Expenses: | |
| | | |
| | | |
| | | |
| | |
| Exploration expense | |
$ | 28,669 | | |
$ | 38,763 | | |
$ | 225,052 | | |
$ | 28,669 | |
| General and administrative | |
| 768,379 | | |
| 24,827 | | |
| 2,215,775 | | |
| 685,565 | |
| Stock-based compensation expense | |
| 6,202 | | |
| - | | |
| 896,947 | | |
| - | |
| Accretion expense | |
| 2,778 | | |
| 359 | | |
| 2,084 | | |
| 2,084 | |
| Loss from Operations | |
| (806,028 | ) | |
| (63,949 | ) | |
| (3,339,858 | ) | |
| (716,318 | ) |
| Interest expense | |
| 1,661,981 | | |
| 38,115 | | |
| 746,930 | | |
| 1,046,106 | |
| Penalty fees (related to debt) | |
| 1,322,933 | | |
| - | | |
| - | | |
| 1,322,933 | |
| Loss on settlement | |
| - | | |
| - | | |
| 13,051 | | |
| - | |
| Loss on note conversion | |
| - | | |
| - | | |
| 1,125,000 | | |
| - | |
| Licenses and fees | |
| 9,450 | | |
| - | | |
| - | | |
| - | |
| Other expenses | |
| 2,994,364 | | |
| 38,115 | | |
| 1,884,981 | | |
| 2,369,039 | |
| Net Loss | |
$ | (3,800,392 | ) | |
$ | (102,064 | ) | |
$ | (5,224,839 | ) | |
$ | (3,085,357 | ) |
| Weighted Average Shares Outstanding | |
| 14,797,786 | | |
| 5,065,994 | | |
| 20,748,826 | | |
| 14,375,071 | |
| Net Loss per Share – Basic and Diluted | |
$ | (0.26 | ) | |
$ | (0.02 | ) | |
$ | (0.25 | ) | |
$ | (0.21 | ) |
| | |
As of October 31, 2022 | | |
As of July 31, 2023 | |
| | |
Actual | | |
Actual | |
| Balance Sheet Data: | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 73,648 | | |
$ | 1,506,028 | |
| Working capital (1) | |
$ | (6,602,004 | ) | |
$ | 807,614 | |
| Total assets | |
$ | 9,488,761 | | |
$ | 11,170,601 | |
| Total liabilities | |
$ | 6,765,637 | | |
$ | 874,073 | |
| Accumulated deficit | |
$ | (3,902,456 | ) | |
$ | (9,127,295 | ) |
| Total equity | |
$ | 2,723,124 | | |
$ | 10,296,528 | |
(1)
We define working capital as current assets less deferred offering costs and less current liabilities.
RISK
FACTORS
You
should carefully consider the risks and uncertainties described below and the other information in this prospectus, including our financial
statements and related notes appearing elsewhere in this prospectus and in the section titled “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our Common Stock. Our business,
financial condition, results of operations or prospects could be materially and adversely affected if any of these risks occurs, and
as a result, the market price of our Common Stock could decline and you could lose all or part of your investment. This prospectus also
contains forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements.”
Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain
factors, including those set forth below. For a summary of these risk factors, please see “Summary of Risk Factors” in the
section titled “Prospectus Summary” beginning on page 3 of this prospectus.
Risks
Relating to Our Business
We
have a history of operating losses, our management has concluded that factors raise substantial doubt about our ability to continue as
a going concern and our auditor has included an explanatory paragraph relating to our ability to continue as a going concern in its audit
report for the year ended October 31, 2022 and for the period from July 19, 2021 (inception) through October 31, 2021.
For
the period from July 19, 2021 (inception) through October 31, 2021, we generated no revenues, reported a net loss of $102,064, and cash
flow used in operating activities of $258,923. For the year ended October 31, 2022, we generated no revenues, reported a net loss of
$3,800,392, and cash flows used in operating activities of $502,144. For the nine months ended July 31, 2023, we generated no revenues,
reported a net loss of $5,224,839, and cash flows used in operating activities of $2,542,360. As of July 31, 2023, we had an accumulated
deficit of $9,127,295. Our management has concluded that our accumulated deficit and no source of revenue sufficient to cover our cost
of operation as well as our dependence on private equity and other financings raise substantial doubt about our ability to continue as
a going concern and our auditor has included an explanatory paragraph relating to our ability to continue as a going concern in its audit
report for the year ended October 31, 2022 and for the period ended October 31, 2021.
Our
financial statements do not include any adjustments that might result from the outcome of this uncertainty. These adjustments would likely
include substantial impairment of the carrying amount of our assets and potential contingent liabilities that may arise if we are unable
to fulfill various operational commitments. In addition, the value of our securities, would be greatly impaired. Our ability to continue
as a going concern is dependent upon generating sufficient cash flow from operations and obtaining additional capital and financing.
If our ability to generate cash flow from operations is delayed or reduced and we are unable to raise additional funding from other sources,
we may be unable to continue in business even if this offering is successful. For further discussion about our ability to continue as
a going concern and our plan for future liquidity, see “Management’s Discussion and Analysis of Financial Condition and Results
of Operations—Ability to Continue as a Going Concern.”
We
may face delays and/or obstacles in project development due to difficulties in obtaining necessary permits from federal, state, county
and/or local agencies, which may materially affect our business.
We
are subject to a number of federal, state, county and local laws, regulations and other requirements relating to oil and natural gas
operations. The laws and regulations that affect the oil and natural gas industry are under constant review for amendment or expansion.
Some of these laws, regulations and requirements result in challenges, delays and/or obstacles in obtaining permits, and some carry substantial
penalties for failure to comply. The regulatory burden on the oil and natural gas industry increases our cost of doing business, can
affect and even obstruct our operations and, consequently, can affect our profitability.
Various
permits for exploratory drilling and production-testing are in-hand for the South Salinas Project, whereas permits for long-term production,
conditional use permits, water disposal and other matters have not yet been obtained. There are challenges and uncertainties in obtaining
permits, which may result in delays and/or obstacles to developing our oil/gas assets. California and Colorado are two States that are
considered to have challenging regulatory environments and Monterey County in California also has this reputation. We may experience
delays and/or obstacles to exploiting our assets, and also may be required to make large expenditures to comply with governmental laws
and regulations and to obtain permits.
The
Company currently has permits from Monterey County for the HV-1, HV-2 and HV-4 wells, permitting each of these wells to be tested by
producing it for its own 18 month period with the Company selling the produced oil and/or gas disposal of produced water from these wells
by trucking it offsite to a licensed water-disposal facility and, if necessary, and flaring on-site any natural gas that is not used
on-site in field operations. The Company is currently seeking a permit from CalGEM and State Water Boards to dispose of produced water
at the Project.
The
Company expects to seek from regulatory agencies any and all additional permits as may be necessary, which may include but not be limited
to conditional use permits, drilling permits, permits for full-field development, permits for long-term production, permits for additional
water disposal wells, permits for transport of oil and gas via pipelines, and such similar permits as are customarily required in oil
and gas exploration and development projects. Delays and/or obstacles in obtaining necessary permits may materially affect our business,
for example:
| |
● |
it will not be possible
to produce the HV-1, HV-2 and HV-4 wells after their individual eighteen-month production-test periods without additional permits; |
| |
● |
project economics will
be less favorable if all necessary permits for on-site water disposal are not approved; |
| |
● |
it will not be possible
to drill new wells other than the HV-1, HV-2 and HV-4 wells without new permits; |
| |
● |
it will not be possible
to utilize five of the existing Project wells (i.e., the BM 2-2, BM 1-2-RD1, HV 2-6, HV 3-6 and/or HV 1-35) without new permits,
including conditional use permits from Monterey County, and other customary permits from local and State agencies; |
| |
● |
it will not be possible
to initiate full-field development without new permits; and |
| |
● |
it will not be possible
to establish long-term production without new permits. |
Our
business and operations were adversely affected by the COVID-19 pandemic and may be adversely affected by COVID-19 and other similar
outbreak, in the future.
In
December 2019, a novel strain of coronavirus, which causes the infectious disease known as COVID-19, was reported in Wuhan, China. The
World Health Organization declared COVID-19 a “Public Health Emergency of International Concern” on January 30, 2020,
and a global pandemic on March 11, 2020. COVID-19 and the governmental responses thereto significantly reduced worldwide economic activity
during much of 2020. On January 30, 2023, the Biden Administration announced it will end the public health emergency (and national emergency)
declarations on May 11, 2023. During 2021 and 2022, oil and gas prices increased above pre-pandemic levels, and the effect of the pandemic
on the Company’s operations in 2022 was minimal. Other contagious diseases in the human population could have similar adverse effects.
The extent to which a future COVID-19 outbreak or outbreak of any other contagious diseases will impact the Company’s results will
depend on the magnitude of any such outbreak, and other future developments that are highly uncertain and cannot be predicted, including
virus mutations and future governmental actions. These potential impacts could negatively affect our operations along with other factors,
including potential further decreases in, or prolonged periods of decreased pricing in, oil and gas, and the possible continued decline
in global demand for oil and gas. Any future decrease in the price of oil, or the demand for oil and gas, as a result of COVID-19, or
other contagious diseases, will likely have a negative impact on our results of operations and cash flows.
Due
to our contractor model for drilling operations, we will be vulnerable to any inability to engage one or more drilling rigs and associated
drilling personnel.
Our
operation plan depends on using the services of drilling contractors such as Ensign that operate their own drilling rigs using their
own personnel. Pursuant to the Drilling Agreement, Ensign drilled the HV-1 well at Presidents Oil Field. Lack of rig availability by
Ensign or any future drilling contractors we utilize would hinder our operations. For example, if there is a drilling boom and rigs are
reserved by other operators into the foreseeable future, or contrarily a general lack of rigs as may occur if the oil industry is in
a slump and rigs are taken out of service.
We
may face potential conflicts of interest in negotiations with related parties, including in negotiations with Trio LLC, an entity which
certain of our officers and directors serve as employees, officers or directors, concerning whether we should exercise our option to
acquire Trio LLC’s assets.
Stan
Eschner, our Executive Chairman and a director, and Steven Rowlee, our Chief Operating Officer, are employed by Trio LLC. Stan
Eschner is Trio LLC’s Chairman and Steven Rowlee is its Vice President. Terry Eschner, our President, also works as a consultant
to Trio LLC through his company Sarlan Resources, Inc. Trio LLC and its management team are part owners of the Company and will continue
as Operator of the South Salinas Project on behalf of Trio Corp and of the other working interest partners.
Under
the Fourth Amendment (as defined below), we were granted a 120-day option (commencing on January 1, 2023) to acquire three assets currently
owned in part by Trio LLC: the Hangman Hollow Field (aka the McCool Ranch Oil Field) asset with the option to acquire Trio LLC’s
44% working interest and their Operatorship; the Kern Front Field asset with an option to acquire Trio LLC’s 22% working interest
and their Operatorship; and the Union Avenue Field with an option to acquire Trio LLC’s 20% working interest and their Operatorship.
This 120-day option has expired.
In
May 2023, subsequent to the 120-day option window referenced above, the Company announced that it had signed an acquisition agreement
with Trio LLC to potentially acquire up to 100% of the working interest in the Union Avenue Field, including Trio LLC’s 20% working
interest. However, the Company and Trio LLC did not agree on the terms and transaction was not closed.
In
October, 2023, the Company acquired an approximate 22% working interest in the McCool Ranch Oil Field from Trio LLC, which the
Company announced in a press release on October 18, 2023. The Company is acquiring this interest in the McCool Ranch Oil Field through
work commitment expenditures that will be allocated to restart production at the field.
Since
Trio LLC is partly owned and controlled by members of our management, acquisitions of Trio LLC’s assets by the Company constitute
related party transactions and, therefore, a special committee of our board of directors, comprised of Mr. Peterson, Mr. Randall and
Mr. Hunter (the “Trio Special Committee”) was formed to evaluate and negotiate the terms of such acquisitions. In addition,
in accordance with our Related Person Transaction Policy, we will have such transactions reviewed and approved by our Board’s Audit
Committee. Trio has engaged KLS Petroleum Consulting LLC (“KLSP”) to conduct a comprehensive analysis and valuation of the
asset, which analysis has been delivered to the Company and is being evaluated by the Trio Special Committee.
We
may also enter into future transactions with Trio LLC. These transactions can give rise to potential conflicts of interest. We
believe that the terms and conditions of our transactions have been, and will continue to be at arm’s length and on commercial
terms that are normal, considering the characteristics of the goods or services involved. However, there can be no assurance that if
such transactions had been concluded between or with third parties, such parties would have negotiated or entered into agreements or
carried out such transactions under the same or substantially similar terms and conditions.
We
are operating in a highly capital-intensive industry, and any sales of produced oil and gas may be insufficient to fund, sustain,
or expand revenue-generating operations.
The
oil/gas drilling exploration and production business are capital intensive due to the cost of experienced personnel; equipment and other
assets required to drill, produce and store oil; regulatory compliance costs; potential liability exposures and financial impact; and
risk of unpredictable volatility in oil market prices and predatory pricing by competitors. Drilling requires an upfront payment of operational
costs with no guarantee that actual oil/gas production will cover such expenses. “Dry” holes and/or non-economic results
at planned oil/gas wells could deplete available funding raised by the Company and render the Company insolvent. The actual amount and
timing of our future capital expenditures may differ materially from our estimates as a result of, among other things, market oil prices,
actual drilling results, the availability of drilling rigs and other services and equipment, and regulatory, technological, and competitive
developments.
Future
cash flow from our operations and access to capital are subject to a number of variables, including: (i) the market prices at which our
produced oil and gas are sold; (ii) our oil and/or gas reserves; (iii) our ability to acquire, locate and produce new oil/gas reserves;
(iv) the levels of our operating expenses; (v) reduction and stabilization of the impact of COVID-19 pandemic’s ongoing disruption
of and reduction in the U.S. and global demand for oil.
We
face substantial uncertainties in estimating the characteristics of our prospects, so you should not place undue reliance on any of our
measures.
In
this prospectus, we provide numerical and other measures of the characteristics, including with regard to size and quality, of our
prospects. These measures may be incorrect, as the accuracy of these measures are functions of available data, geological,
geophysical, petrophysical and engineering interpretation and judgment. To date, approximately seven wells have been drilled at our
prospects, of which we consider three wells to be discovery wells. Any analogies drawn by us from other wells, discoveries or
producing fields may not prove to be accurate indicators of the success of developing reserves from our discoveries and prospects.
Furthermore, we may have inaccurately evaluated the accuracy of the data from analog wells or prospects produced by other parties,
which we may have used.
There
are uncertainties in reserve forecasts and in associated estimates of future cash flows in the South Salinas Project due to uncertainties
in various matters including, for example, in the following:
| |
● |
the areal extent of the
oil and/or gas fields and/or prospects; |
| |
● |
the gross and net thicknesses
of the geologic zones that comprise the oil and/or gas reservoirs (note: “oil and gas reservoirs” are geologic zones
that contain oil and/or gas); |
| |
● |
the porosity, permeability
and fluid saturations (i.e., oil, gas and/or water saturation) of the oil and/or gas reservoirs; |
| |
● |
the oil, gas and/or water
production rates that will be achieved initially and during extended reservoir performance; |
| |
● |
the volumes of oil and/or
gas that can be economically extracted from the oil and/or gas reservoirs; |
| |
● |
the extent of natural fractures
that will be encountered in the naturally-fractured Monterey Formation oil and gas reservoirs (e.g., the Monterey Yellow Zone and
Monterey Blue Zone that are discussed hereunder and in the Reserve Report and Reserve Supplement Report); |
| |
● |
pore volume compressibility
and its impact on reservoir pressure and thus on reservoir performance; and |
| |
● |
the oil- and gas-prices
during the life of the Project. |
It
is possible that few or none of our wells to be drilled in the future will find accumulations of oil/gas in commercial quality or quantity.
Any significant variance between actual results and our assumptions could materially affect the quantities of oil attributable to any
particular prospect.
The
drilling of wells is speculative, often involving significant costs that may be more than our estimates, and drilling may not result
in any discoveries or additions to our future production or future reserves. Any material inaccuracies in drilling costs, estimates or
underlying assumptions will materially affect our business.
Exploring
for and developing oil involves a high degree of operational and financial risk, which precludes definitive statements as to the time
required and costs involved in reaching certain objectives. The budgeted costs of planning, drilling, completing and operating wells
are often exceeded and can increase significantly when drilling costs rise due to a tightening in the supply of various types of oilfield
equipment and related services or unanticipated geologic and/or mechanical conditions. Before a well is spud, we may incur significant
geological and geophysical (seismic) costs, which are incurred whether a well eventually produces commercial quantities of oil/gas, or
is drilled at all. Drilling may be unsuccessful for many reasons, including geologic conditions, weather, cost overruns, equipment shortages
and mechanical difficulties. Exploratory wells bear a much greater risk of loss than development wells. Furthermore, the successful drilling
of a well does not necessarily result in the commercially viable development of a field. A variety of factors, including regulatory,
geologic and/or market-related, can cause a field to become uneconomic or only marginally economic. All of our prospects will require
significant additional exploration and development, regulatory approval and commitments of resources prior to commercial development.
The successful drilling of a single well may not be indicative of the potential for the development of a commercially viable field. Furthermore,
if our actual drilling and development costs are significantly more than our estimated costs, we may not be able to continue our business
operations as proposed and may be forced to modify our development plans.
We
have been an exploration stage entity and our future performance is uncertain.
We
have been an exploration stage entity and will continue to be so until we generate revenue. Exploration stage entities face substantial
business risks and may suffer significant losses. We have generated substantial net losses and negative cash flows from operating activities
since our inception and expect to continue to incur substantial net losses as we continue our exploration and appraisal program. We face
challenges and uncertainties in financial planning as a result of the unavailability of historical data and uncertainties regarding the
nature, scope and results of our future activities. We will need to develop additional business relationships, establish additional operating
procedures, hire additional staff, and take other measures necessary to conduct our intended business activities. We may not be successful
in implementing our business strategies or in completing the development of the facilities necessary to conduct our business as planned.
In the event that one or more of our drilling programs is not completed, is delayed or terminated, our operating results will be adversely
affected and our operations will differ materially from the activities described in this prospectus. There are uncertainties surrounding
our future business operations that must be navigated if we transition from an exploration stage entity and commence generating revenues,
some of which may cause a material adverse effect on our results of operations and financial condition.
We
are dependent on certain members of our management and technical team.
Investors
in our Common Stock must rely upon the ability, expertise, judgment and discretion of our management and the success of our technical
team in identifying, discovering, evaluating and developing reserves. Our performance and success are dependent, in part, upon key members
of our management and technical team, and their loss or departure could be detrimental to our future success. In making a decision to
invest in our Common Stock, you must be willing to rely to a significant extent on our management’s discretion and judgment. A
significant amount of the interests in our Company held by members of our management previously vested. While the Company currently has
an equity incentive plan in place, there can be no assurance that our management and technical team will remain in place. The loss of
any of our management and technical team members could have a material adverse effect on our results of operations and financial condition,
as well as on the market price of our Common Stock. See “Management.”
Seismic
studies do not guarantee that oil or gas is present or, if present, will produce in economic quantities.
Oil
exploration and production companies, like the Company, rely on seismic studies to assist in assessing prospective drilling
opportunities on oil and gas properties, as well as on properties that a company may acquire. Such seismic studies are merely an
interpretive tool and do not necessarily guarantee that oil or gas is present or, if present, will produce in economic or profitable
quantities.
The
potential lack of availability of, or cost of, drilling rigs, equipment, supplies, personnel, and crude oil field services could adversely
affect our ability to execute on a timely basis exploration and development plans within any budget.
We
may encounter an increase in the cost of securing needed drilling rigs, equipment, and supplies. Larger producers may be more likely
to secure access to such equipment by offering more lucrative terms. If we are unable to acquire access to such resources or can obtain
access only at higher prices, its ability to convert oil reserves into cash flow could be delayed, and the cost of producing from those
oil reserves could increase significantly, which would adversely affect results of operations and financial condition. Our current drilling
operations are limited, and availability of essential drilling assets may not become a risk factor until such time as we increase drilling
operations.
Our
business plan requires substantial additional capital, which we may be unable to raise on acceptable terms in the future, which may in
turn limit our ability to develop our exploration, appraisal, development and production activities.
We
expect our capital outlays and operating expenditures to be substantial over the next several years as we expand our operations. Obtaining
and/or reprocessing and/or reinterpreting seismic data, as well as exploration, appraisal, development and production activities entail
considerable costs, and we expect that we will need to raise substantial additional capital, through future private or public equity
offerings, strategic alliances or debt financing.
Our
future capital requirements will depend on many factors, including:
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the scope, rate of progress
and cost of our exploration, appraisal, development and production activities; |
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oil and natural gas prices; |
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our ability to produce
oil or natural gas; |
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the terms and timing of
any drilling and other production-related arrangements that we may enter into; |
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the cost and timing of
governmental regulatory approvals of permits, and; |
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the effects of competition
from other companies and/or third-parties operating in the oil and gas industry |
As
a result of the first closing of the Private Placement on October 4, 2023, we raised approximately $1.86 million in net proceeds, and
the opportunity to raise, in a second closing of the Private Placement, an additional $1.395 in net proceeds, if certain conditions are
met, including having the registration statement, of which this prospectus forms a part, declared effective. Notwithstanding that we
are able to raise all of these additional funds we will need additional capital to continue to fully fund our drilling operations. Additional
capital may not be available on favorable terms, or at all. The securities issued in connection with the Private Placement will, in all
likelihood, if converted and/or exercised into or for shares of Common Stock, result in significant dilution to our existing stockholders.
In addition, if we are successful raising additional capital through the sale of our securities, at such time our existing shareholders
would, in all likelihood, be further diluted and new investors may demand rights, preferences or privileges senior to those of existing
shareholders. If we raise additional capital through debt financing, the financing may involve covenants that restrict our business activities.
If we choose to farm-out our interests, we may lose operating control or influence over such assets.
Assuming
we are able to timely commence exploration, appraisal, development and/or production activities, and/or to maintain oil/gas production,
and/or to maintain force majeure status, then our rights to our mineral leasehold should extend for certain periods of time and/or for
life of production. If we are unable to meet our commitments we may be subject to significant potential forfeiture of all or part of
the mineral leasehold. If we are not successful in raising additional capital, we may be unable to continue our future exploration and
production activities or successfully exploit our assets, and we may lose the rights to develop said assets.
A
substantial or extended decline in global and/or local oil and/or natural gas prices may adversely affect our business, financial condition
and results of operations.
The
prices that we will receive for our oil and natural gas will significantly affect our revenue, profitability, access to capital and future
growth rate. Historically, the oil and natural gas markets have been volatile and will likely continue to be volatile in the future.
The prices that we will receive for our future production and the levels of our future production depend on numerous factors. These factors
include, but are not limited to, the following:
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changes in supply and demand
for oil and natural gas; |
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the actions of the Organization
of the Petroleum Exporting Countries (“OPEC”); |
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speculation as to the future
price of oil and natural gas and the speculative trading of oil and natural gas futures contracts; |
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global economic conditions; |
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political and economic
conditions, including embargoes in oil-producing countries or affecting other oil-producing activities, particularly in the Middle
East, Africa, Russia and South America; |
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the continued threat of
terrorism and the impact of military and other action, including U.S. military operations in the Middle East; |
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the level of global oil
and natural gas exploration and production activity; |
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the level of global oil
inventories and oil refining capacities; |
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weather conditions and
natural disasters; |
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technological advances
affecting energy consumption; |
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governmental regulations
and taxation policies; |
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proximity and capacity
of transportation facilities; |
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the price and availability
of competitors’ supplies of oil and natural gas; and |
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the price and availability
of alternative fuels. |
Lower
oil prices may not only decrease our revenues on a per share basis but also may reduce the amount of oil that we can produce economically.
A substantial or extended decline in oil and natural gas prices may materially and adversely affect our future business, financial condition,
results of operations, liquidity or ability to finance planned capital expenditures.
Unless
we replace our oil reserves, our reserves and production will decline over time. Our business is dependent on our continued successful
identification of productive fields and prospects and the identified locations in which we drill in the future may not yield oil or natural
gas in commercial quantities.
Production
from oil properties may decline as reserves are depleted, with the rate of decline depending on reservoir characteristics and other factors.
Similarly, our current reserves will decline as the reserves are produced. Our future oil reserves and production, and therefore our
cash flows and income, are highly dependent on our success in efficiently developing our current reserves and/or economically finding
or acquiring additional recoverable reserves. While our team members have had success in identifying and developing commercially exploitable
deposits and drilling locations in the past, we may be unable to replicate that success in the future. We may not identify any more commercially
exploitable deposits or successfully drill, complete or produce more oil reserves, and the wells which we have drilled and currently
plan to drill within our South Salinas Project area may not discover or produce any further oil or gas or may not discover or produce
additional commercially viable quantities of oil or gas to enable us to continue to operate profitably. If we are unable to replace our
future production, the value of our reserves will decrease, and our business, financial condition and results of operations will be materially
adversely affected.
Our
inability to access appropriate equipment and infrastructure in a timely manner may hinder our access to oil and natural gas markets
or delay our future oil and natural gas production.
Our
ability to market our future oil/gas production will depend substantially on the availability and capacity of processing facilities,
tanker trucks, pipelines and other infrastructure. Our failure to obtain such facilities on acceptable terms could materially harm our
business. We will rely on access to drilling rigs suitable for our projects. The availability of drilling rigs may be problematic or
delayed, and we may not be able to gain timely access to suitable rigs. We may be required to shut-in oil/gas wells because of the absence
of markets or because facilities are inadequate or nonexistent. If that were to occur, then we would be unable to realize revenue from
those wells until arrangements were made to deliver the production to market, which could cause a material adverse effect on our financial
condition and results of operations.
Additionally,
the exploitation and sale of associated and non-associated natural gas and liquids will be subject to timely commercial processing and
marketing of these products, which may depend on the contracting, financing, building and operating of infrastructure by third parties.
We
are subject to numerous risks inherent to the exploration and production of oil and natural gas.
Oil
and natural gas exploration and future production activities involve many risks that a combination of experience, knowledge and interpretation
may not be able to overcome. Our future will depend on the success of our exploration and future production activities and on the development
of infrastructure that will allow us to take advantage of our discoveries. As a result, our oil and natural gas exploration and future
production activities are subject to numerous risks, including the risk that drilling will not result in commercially viable oil and
natural gas production. Our decisions to purchase, explore or develop discoveries, prospects or licenses will depend in part on the evaluation
of seismic data through geophysical and geological analyses, production data and engineering studies, the results of which are often
inconclusive or subject to varying interpretations.
Furthermore,
the marketability of expected oil and natural gas production from any future discoveries and prospects will also be affected by numerous
factors. These factors include, but are not limited to, market fluctuations of prices, proximity, capacity and availability of processing
facilities, transportation vehicles and pipelines, equipment availability and government regulations (including, without limitation,
regulations relating to prices, taxes, royalties, allowable production, domestic supply requirements, importing and exporting of oil
and natural gas, environmental protection and climate change). The effect of these factors, individually or jointly, may result in us
not receiving an adequate return on invested capital.
In
the event that our currently undeveloped discoveries and prospects are developed and become operational, they may not produce oil and
natural gas in commercial quantities or at the costs anticipated, and our projects may cease production, in part or entirely, in certain
circumstances. Discoveries may become uneconomical as a result of an increase in operating costs to produce oil and natural gas. Our
actual operating costs may differ materially from our current estimates. Moreover, it is possible that other developments, such as increasingly
strict environmental, climate change, health and safety laws and regulations and enforcement policies thereunder and claims for damages
to property or persons resulting from our operations, could result in substantial costs and liabilities, delays, an inability to complete
the development of our discoveries or the abandonment of such discoveries, which could cause a material adverse effect on our financial
condition and results of operations.
We
are subject to drilling and other operational environmental hazards.
The
oil and natural gas business involves a variety of operating risks, including, but not limited to:
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fires, blowouts, spills,
cratering and explosions; |
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mechanical and equipment
problems, including unforeseen engineering complications; |
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uncontrolled flows or leaks
of oil, well fluids, natural gas, brine, toxic gas or other pollution; |
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gas flaring operations; |
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formations with abnormal
pressures; |
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pollution, other environmental
risks, and geological problems; and |
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weather conditions and
natural disasters. |
The
development schedule of oil and natural gas projects, including the availability and cost of drilling rigs, equipment, supplies, personnel
and oilfield services, is subject to delays and cost overruns.
Historically,
some oil and natural gas development projects have experienced delays and capital cost increases and overruns due to, among other factors,
the unavailability or high cost of drilling rigs and other essential equipment, supplies, personnel and oilfield services. To the extent
we locate commercially viable reserves through our exploration and development activities, the cost to develop our projects will not
have been fixed and will remain dependent upon a number of factors, including the completion of detailed cost estimates and final engineering,
contracting and procurement costs. Our construction and operation schedules may not proceed as planned and may experience delays or cost
overruns. Any delays may increase the costs of the project, requiring additional capital, and such capital may not be available in a
timely and cost-effective fashion.
Participants
in the oil and gas industry are subject to numerous laws that can affect the cost, manner or feasibility of doing business.
Exploration
and production activities in the oil and gas industry are subject to local laws and regulations. We may be required to make large expenditures
to comply with governmental laws and regulations, particularly in respect of the following matters:
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permits for drilling, long-term
production, water disposal, conditional use and other matters; |
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licenses for drilling operations; |
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tax increases, including
retroactive claims; |
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unitization of oil accumulations; |
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local content requirements
(including the mandatory use of local partners and vendors); and |
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environmental requirements
and obligations, including remediation or investigation activities. |
Under
these and other laws and regulations, we could be liable for personal injuries, property damage and other types of damages. Failure to
comply with these laws and regulations also may result in the suspension or termination of our operations and subject us to administrative,
civil and criminal penalties. Moreover, these laws and regulations could change, or their interpretations could change, in ways that
could substantially increase our costs. These risks may be higher in developing countries in which we may at some point in the future
decide to conduct our operations, where there could be a lack of clarity or lack of consistency in the application of these laws and
regulations. Any resulting liabilities, penalties, suspensions or terminations could have a material adverse effect on our financial
condition and results of operations.
We
and our operations are subject to numerous environmental, health and safety regulations which may result in material liabilities and
costs.
We
and our operations are subject to various international, foreign, federal, state and local environmental, health and safety laws and
regulations governing, among other things, the emission and discharge of pollutants into the ground, air or water, the generation, storage,
handling, use and transportation of regulated materials and the health and safety of our employees. We are required to obtain environmental
permits from governmental authorities for our operations, including drilling permits for our wells. We have not been or may not be at
all times in complete compliance with these permits and the environmental laws and regulations to which we are subject, and there is
a risk that these laws and regulations could change in the future or become more stringent. If we violate or fail to comply with these
laws, regulations or permits, we could be fined or otherwise sanctioned by regulators, including through the revocation of our permits
or the suspension or termination of our operations. If we fail to obtain permits in a timely manner or at all (due to opposition from
community or environmental interest groups, governmental delays or any other reasons), or if we face additional requirements imposed
as a result of changes in or enactment of laws or regulations, such failure to obtain permits or such changes in or enactment of laws
could impede or affect our operations, which could have a material adverse effect on our results of operations and financial condition.
We,
as an interest owner or as the designated operator of certain of our current and future discoveries and prospects, could be held liable
for some or all environmental, health and safety costs and liabilities arising out of our actions and omissions as well as those of our
block partners, third-party contractors or other operators. To the extent we do not address these costs and liabilities or if we do not
otherwise satisfy our obligations, our operations could be suspended or terminated. We have contracted with and intend to continue to
hire third parties to perform services related to our operations. There is a risk that we may contract with third parties with unsatisfactory
environmental, health and safety records or that our contractors may be unwilling or unable to cover any losses associated with their
acts and omissions. Accordingly, we could be held liable for all costs and liabilities arising out of the acts or omissions of our contractors,
which could have a material adverse effect on our results of operations and financial condition.
We
maintain insurance at levels that we believe are consistent with industry practices, but we are not fully insured against all risks.
Our insurance may not cover any or all environmental claims that might arise from our future operations or at any of our asset areas.
If a significant accident or other event occurs and is not covered by insurance, such accident or event could have a material adverse
effect on our results of operations and financial condition.
We
expect continued and increasing attention to climate change issues and associated regulations to constrain and impede the oil/gas industry.
We
expect continued and increasing attention to climate change issues. Various countries and regions have agreed to regulate emissions of
greenhouse gases, including methane (a primary component of natural gas) and carbon dioxide (a byproduct of oil and natural gas combustion).
The regulation of greenhouse gases and the physical impacts of climate change in the areas in which we, our customers and the end-users
of our products operate could adversely impact our operations and the demand for our products.
Environmental,
health and safety laws are complex, change frequently and have tended to become increasingly stringent over time. Our costs of complying
with current and future climate change, environmental, health and safety laws, the actions or omissions of our block partners and third
party contractors and our liabilities arising from releases of, or exposure to, regulated substances may adversely affect our results
of operations and financial condition. See “Business—Environmental Matters and Regulation.”
We
may incur substantial losses and become subject to liability claims as a result of future oil and natural gas operations, for which we
may not have adequate insurance coverage.
We
intend to maintain insurance against risks in the operation of the business we plan to develop and in amounts in which we believe to
be reasonable. Such insurance, however, may contain exclusions and limitations on coverage. For example, we are not insured against political
or terrorism risks. We may elect not to obtain insurance if we believe that the cost of available insurance is excessive relative to
the risks presented. Losses and liabilities arising from uninsured and underinsured events could materially and adversely affect our
business, financial condition and results of operations.
We
may be subject to risks in connection with acquisitions and the integration of significant acquisitions may be difficult.
We
periodically evaluate acquisitions of prospects, properties, mineral leases, licenses, reserves and other strategic transactions that
appear to fit within our overall business strategy. The successful acquisition of these assets requires an assessment of several factors,
including:
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oil and/or gas reserves; |
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future oil and natural gas prices and their differentials; |
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development and operating costs; and |
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potential environmental and other liabilities. |
The
accuracy of these assessments is inherently uncertain. In connection with these assessments, we perform a review of the subject assets
that we believe to be generally consistent with industry practices. Our review will not reveal all existing or potential problems nor
will it permit us to become sufficiently familiar with the assets to fully assess their deficiencies and potential recoverable reserves.
Inspections may not always be performed on every well, and environmental problems are not necessarily observable even when an inspection
is undertaken. Even when problems are identified, the seller may be unwilling or unable to provide effective contractual protection against
all or part of the problems. We may not be entitled to contractual indemnification for environmental liabilities and could acquire assets
on an “as is” basis. Significant acquisitions and other strategic transactions may involve other risks, including:
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diversion of our management’s
attention to evaluating, negotiating and integrating significant acquisitions and strategic transactions; |
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the challenge and cost
of integrating acquired operations, information management and other technology systems and business cultures with those of ours
while carrying on our ongoing business; |
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difficulty associated with
coordinating geographically separate organizations; and |
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the challenge of attracting
and retaining personnel associated with acquired operations. |
The
process of integrating operations could cause an interruption of, or loss of momentum in, the activities of our business. Members of
our senior management may be required to devote considerable amounts of time to this integration process, which will decrease the time
they will have to manage our business. If our senior management is not able to effectively manage the integration process, or if any
significant business activities are interrupted as a result of the integration process, our business could suffer.
If
we fail to realize the anticipated benefits of a significant acquisition, our results of operations may be adversely affected.
The
success of a significant acquisition will depend, in part, on our ability to realize anticipated growth opportunities from combining
the acquired assets or operations with those of ours. Even if a combination is successful, it may not be possible to realize the full
benefits we may expect in estimated proved reserves, production volume, cost savings from operating synergies or other benefits anticipated
from an acquisition or realize these benefits within the expected time frame. Anticipated benefits of an acquisition may be offset by
operating losses relating to changes in commodity prices, or in oil and gas industry conditions, or by risks and uncertainties relating
to the exploratory prospects of the combined assets or operations, or an increase in operating or other costs or other difficulties,
including the assumption of environmental or other liabilities in connection with the acquisition. If we fail to realize the benefits
we anticipate from an acquisition, our results of operations may be adversely affected.
The
requirements of being a public company may strain our resources, result in more litigation and divert management’s attention.
As
a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street
Reform and Consumer Protection Act, the listing requirements of the NYSE American and other applicable securities rules and regulations.
Complying with these rules and regulations have increased our legal and financial compliance costs, make some activities more difficult,
time consuming or costly, and increase demand on our systems and resources, including management. The Exchange Act requires, among other
things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act
requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting.
We are required to disclose changes made in our internal control and procedures on a quarterly basis. In order to maintain and, if required,
improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources
and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which
could adversely affect our business and operating results. We may also need to hire additional employees or engage outside consultants
to comply with these requirements, which will increase our costs and expenses.
In
addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for
public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations
and standards are subject to varying interpretations, in many cases due to their lack of specificity and, as a result, their application
in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty
regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to
invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative
expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our
efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due
to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business
may be adversely affected.
These
new rules and regulations may make it more expensive for us to obtain director and officer liability insurance and, in the future, we
may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more
difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and
compensation committee, and qualified executive officers.
By
disclosing information in this prospectus and in other filings required of a public company, our business and financial condition will
become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties.
If those claims are successful, our business could be seriously harmed. Even if the claims do not result in litigation or are resolved
in our favor, the time and resources needed to resolve them could divert our management’s resources and seriously harm our business.
We
are subject to the examination of our tax returns and other tax matters by the U.S. Internal Revenue Service, states in which we conduct
business, and other tax authorities. If our effective tax rates were to increase, or if the ultimate determination of our taxes owed
is for an amount in excess of amounts previously accrued, our financial condition, operating results and cash flows could be materially
adversely affected.
U.S.
federal, state and local tax laws are being re-examined and evaluated. New laws and interpretations of the law are taken into account
for financial statement purposes in the quarter or year that they become applicable. Tax authorities are increasingly scrutinizing the
tax positions of companies. If U.S. federal, state or local tax authorities change applicable tax laws, our overall taxes could increase,
and our business, financial condition or results of operations may be adversely impacted.
In
addition, any significant changes enacted by the current U.S. presidential administration to the Code or specifically to the Tax Cuts
and Jobs Act (the “U.S. Tax Act”) enacted in 2017, or to regulatory guidance associated with the U.S. Tax Act, could materially
adversely affect our effective tax rate.
Our
amended and restated certificate of
incorporation provides that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all
disputes between us and our shareholders, which could limit its stockholders’ ability to obtain a favorable judicial forum for
disputes with us or our directors, officers or other employees.
Our
amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum,
the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (1) any derivative action or proceeding brought
on our behalf, (2) any action asserting a claim of breach of a fiduciary duty or other wrongdoing by any of our directors, officers,
employees or agents to us or our stockholders, (3) any action asserting a claim against us arising pursuant to any provision of the Delaware
General Corporate Law (“DGCL”) or our amended and restated certificate of incorporation or amended and restated bylaws, (4)
any action to interpret, apply, enforce or determine the validity of our amended and restated certificate of incorporation or amended
and restated bylaws, or (5) any action asserting a claim governed by the internal affairs doctrine. Under our amended and restated certificate
of incorporation, this exclusive form provision will not apply to claims which are vested in the exclusive jurisdiction of a court or
forum other than the Court of Chancery of the State of Delaware, or for which the Court of Chancery of the State of Delaware does not
have subject matter jurisdiction. For instance, the exclusive forum provision in our amended and restated certificate of incorporation
does not apply to actions arising under federal securities laws, including suits brought to enforce any liability or duty created by
the Securities Act of 1933 (the “Securities Act”), the Exchange Act of 1934 (the “Exchange Act”), or the rules
and regulations thereunder. This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act.
Our amended and restated certificate of incorporation provides that any person or entity holding, purchasing or otherwise acquiring any
interest in shares of our capital stock will be deemed to have notice of and to have consented to this choice of forum provision. It
is possible that a court of law could rule that the choice of forum provision contained in our amended and restated certificate of incorporation
is inapplicable or unenforceable if it is challenged in a proceeding or otherwise. Therefore, the exclusive forum provision in our amended
and restated certificate of incorporation will not relieve us of our duty to comply with the federal securities laws and the rules and
regulations thereunder, and shareholders will not be deemed to have waived our compliance with these laws, rules and regulations.
In
addition, our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative
forum, the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the sole and exclusive
forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, or the rules and regulations
promulgated thereunder. We note, however, that there is uncertainty as to whether a court would enforce this provision and that investors
cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Section 22 of the Securities Act creates
concurrent jurisdiction for state and federal courts over all suits brought to enforce any duty or liability created by the Securities
Act or the rules and regulations thereunder.
This
exclusive forum provision may limit a shareholder’s ability to bring a claim in a judicial forum of its choosing for disputes with
us or our directors, officers or other employees, which may discourage lawsuits against us or our directors, officers or other employees.
In addition, shareholders who do bring a claim in the state or federal court in the State of Delaware could face additional litigation
costs in pursuing any such claim, particularly if they do not reside in or near Delaware. The state or federal court of the State of
Delaware may also reach different judgments or results than would other courts, including courts where a shareholder would otherwise
choose to bring the action, and such judgments or results may be more favorable to us than to our shareholders. However, the enforceability
of similar exclusive forum provisions in other companies’ certificates of incorporation have been challenged in legal proceedings,
and it is possible that a court could find this type of provision to be inapplicable to, or unenforceable in respect of, one or more
of the specified types of actions or proceedings. If a court were to find the exclusive forum provision contained in our amended and
restated certificate of incorporation to be inapplicable or unenforceable in an action, we might incur additional costs associated with
resolving such action in other jurisdictions.
Our
business and results of operations may be materially adversely effected by inflationary pressures.
As
of the date of this prospectus, inflationary pressures have led to increased construction materials and labor costs, specifically associated
with steel, cement, and other materials. We believe we will continue to experience such pressures in future quarters, as well as potential
delays in our contractors’ ability to requisition such materials. These pressures have led to an overall increase in budgeted construction
costs. No assurance can be given that the costs of our projects will not exceed budgets. Any such cost overruns or delays could have
a material adverse effect on our business.
Risks
Relating to This Offering
There
can be no assurance that an active and liquid trading market for our Common Stock will continue or that we will be able to continue to
comply with the NYSE American’s continued listing standards.
Our
common stock began trading on the NYSE American exchange in April 2023, as a result of our consummation of an initial public offering
of our shares of Common Stock. Our Common Stock is currently listed on the NYSE American under the symbol “TPET.” There can
be no assurance an active and liquid trading market in our Common Stock will continue.
There
is no guarantee that we will be able to maintain such listing for any period of time by perpetually satisfying the NYSE American’s
continued listing requirements. Our failure to continue to meet these requirements may result in our Common Stock being delisted from
the NYSE American.
Our
share price may be volatile, and purchasers of our Common Stock could incur substantial losses.
Our
share price may be volatile. The stock market in general has experienced extreme volatility that has often been unrelated to the operating
performance of particular companies. As a result of this volatility, investors may not be able to sell their Common Stock at or above
the price paid for such shares. The market price for our Common Stock may be influenced by many factors, including, but not limited to:
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the price of oil and natural
gas; |
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the success of our exploration
and development operations, and the marketing of any oil and natural gas we produce; |
| |
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regulatory developments
in the United States and/or in any foreign countries where we may have operations in the future; |
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the recruitment or departure
of key personnel; |
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quarterly or annual variations
in our financial results or those of companies that are perceived to be similar to us; |
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market conditions in the
industries in which we compete and issuance of new or changed securities; |
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analysts’ reports
or recommendations; |
| |
● |
the failure of securities
analysts to cover our Common Stock or changes in financial estimates by analysts; |
| |
● |
the inability to meet the
financial estimates of analysts who follow our Common Stock; |
| |
● |
the issuance of any additional
securities of ours; |
| |
● |
investor perception of
our company and of the industry in which we compete; and |
| |
● |
general economic, political
and market conditions. |
The
concentration of our share capital ownership among our largest shareholders, and their affiliates, will limit your ability to influence
corporate matters.
As
of October 31, 2023, our five largest shareholders collectively own approximately 25.6% of our issued and outstanding Common
Stock. Consequently, these shareholders have significant influence over all matters that require approval by our shareholders, including
the election of directors and approval of significant corporate transactions. This concentration of ownership will limit your ability
to influence corporate matters, and as a result, actions may be taken that you may not view as beneficial.
Our
Common Stock may be subject to the “penny stock” rules in the future. It may be more difficult to resell securities classified
as “penny stock.”
Our
Common Stock may be subject to “penny stock” rules (generally defined as non-exchange traded stock with a per-share price
below $5.00) in the future. While our Common Stock is not currently considered a “penny stock” since it is listed on the
NYSE American, if we are unable to maintain listing and our Common Stock is no longer listed on the NYSE American, unless we maintain
a per-share price above $5.00, our Common Stock will become a “penny stock.” These rules impose additional sales practice
requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as “established
customers” or “accredited investors.” For example, broker-dealers must determine the appropriateness for non-qualifying
persons of investments in penny stocks. Broker-dealers must also provide, prior to a transaction in a penny stock not otherwise exempt
from the rules, a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock
market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, disclose the compensation
of the broker-dealer and its salesperson in the transaction, furnish monthly account statements showing the market value of each penny
stock held in the customer’s account, provide a special written determination that the penny stock is a suitable investment for
the purchaser, and receive the purchaser’s written agreement to the transaction.
Legal
remedies available to an investor in “penny stocks” may include the following:
●
If a “penny stock” is sold to the investor in violation of the requirements listed above, or other federal or states securities
laws, the investor may be able to cancel the purchase and receive a refund of the investment.
●
If a “penny stock” is sold to the investor in a fraudulent manner, the investor may be able to sue the persons and firms
that committed the fraud for damages.
These
requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes
subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers
from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities. These requirements
may restrict the ability of broker-dealers to sell our Common Stock or our warrants and may affect your ability to resell our Common
Stock and our warrants.
Many
brokerage firms will discourage or refrain from recommending investments in penny stocks. Most institutional investors will not invest
in penny stocks. In addition, many individual investors will not invest in penny stocks due, among other reasons, to the increased financial
risk generally associated with these investments.
For
these reasons, penny stocks may have a limited market and, consequently, limited liquidity. We can give no assurance at what time, if
ever, our Common Stock or our warrants will not be classified as a “penny stock” in the future.
Certain
of our executive officers and directors have significant duties with, and spend significant time serving, entities that may compete with
us in seeking acquisitions and business opportunities and, accordingly, may have conflicts of interest in allocating time or pursuing
business opportunities.
Certain
of our executive officers and directors, who are responsible for managing the direction of our operations, hold positions of responsibility
with other entities (including affiliated entities) that are in the oil and natural gas industry. These executive officers and directors
may become aware of business opportunities that may be appropriate for presentation to us as well as to the other entities with which
they are, or may become, affiliated. Due to these existing and potential future affiliations, they may present potential
business opportunities to other entities prior to presenting them to us, which could cause additional conflicts of interest. They may
also decide that certain opportunities are more appropriate for other entities with which they are affiliated, and as a result, they
may elect not to present those opportunities to us. These conflicts may not be resolved in our favor. For additional discussion of our
management’s business affiliations and the potential conflicts of interest of which our stockholders should be aware, see “Certain
Relationships and Related Party Transactions.”
For
as long as we are an emerging growth company, we will not be required to comply with certain reporting requirements, including those
relating to accounting standards and disclosure about our executive compensation, that apply to other public companies.
We
are classified as an “emerging growth company” under the JOBS Act. For as long as we are an emerging growth company, which
may be up to five full fiscal years, unlike other public companies, we will not be required to, among other things: (i) provide an auditor’s
attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant
to Section 404(b) of the Sarbanes-Oxley Act; (ii) comply with any new requirements adopted by the PCAOB requiring mandatory audit firm
rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about
the audit and the financial statements of the issuer; (iii) provide certain disclosures regarding executive compensation required of
larger public companies; or (iv) hold nonbinding advisory votes on executive compensation. We will remain an emerging growth company
for up to five years, although we will lose that status sooner if we have more than $1.235 billion of revenues in a fiscal year, have
more than $700 million in market value of our Common Stock held by non-affiliates, or issue more than $1.0 billion of non-convertible
debt over a three-year period.
To
the extent that we rely on any of the exemptions available to emerging growth companies, you will receive less information about our
executive compensation and internal control over financial reporting than issuers that are not emerging growth companies. If some investors
find our Common Stock to be less attractive as a result, there may be a less active trading market for our Common Stock and our stock
price may be more volatile.
We
do not intend to pay dividends on our Common Stock and, consequently, your only opportunity to achieve a return on your investment is
if the price of our shares appreciates.
We
do not plan to declare dividends on shares of our Common Stock in the foreseeable future. Consequently, your only opportunity to achieve
a return on your investment in us will be if the market price of our Common Stock appreciates, which may not occur, and you sell your
shares at a profit. There is no guarantee that the price of our Common Stock that will prevail in the market after this offering will
ever exceed the price that you pay.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements that can involve substantial risks and uncertainties. All statements other than statements
of historical facts contained in this prospectus, including statements regarding our future results of operations and financial position,
business strategy, prospective products, product approvals, research and development costs, future revenue, timing and likelihood of
success, plans and objectives of management for future operations, future results of anticipated products and prospects, plans and objectives
of management are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors
that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements.
In
some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “contemplate,”
“continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,”
“potential,” “predict,” “project,” “should,” “target,” “will,”
or “would” or the negative of these terms or other similar expressions, although not all forward-looking statements contain
these words. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:
| |
● |
our ability to find, acquire
or gain access to other discoveries and prospects and to successfully develop our current discoveries and prospects; |
| |
● |
uncertainties inherent
in making estimates of our oil and natural gas data; |
| |
● |
the successful implementation
of our prospect discovery and development and drilling plans with the South Salinas Project; |
| |
● |
projected and targeted
capital expenditures and other costs, commitments and revenues; |
| |
● |
our dependence on our key
management personnel and our ability to attract and retain qualified technical personnel; |
| |
● |
the ability to obtain financing
and the terms under which such financing may be available; |
| |
● |
the volatility of oil and
natural gas prices; |
| |
● |
the availability and cost
of developing appropriate infrastructure around and transportation to our discoveries and prospects; |
| |
● |
the availability and cost
of drilling rigs, production equipment, supplies, personnel and oilfield services; |
| |
● |
other competitive pressures; |
| |
● |
potential liabilities inherent
in oil and natural gas operations, including drilling risks and other operational and environmental hazards; |
| |
● |
current and future government
regulation of the oil and gas industry; |
| |
● |
cost of compliance with
laws and regulations; |
| |
● |
changes in environmental,
health and safety or climate change laws, greenhouse gas regulation or the implementation of those laws and regulations; |
| |
● |
environmental liabilities; |
| |
● |
geological, technical,
drilling and processing problems; |
| |
● |
military operations, terrorist
acts, wars or embargoes; |
| |
● |
the cost and availability
of adequate insurance coverage; |
| |
● |
our vulnerability to severe
weather events; and |
| |
● |
other risk factors discussed
in the “Risk Factors” section of this prospectus. |
We
have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which
we operate and financial trends that we believe may affect our business, financial condition, results of operations and prospects, and
these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only
as of the date of this prospectus and are subject to a number of risks, uncertainties and assumptions described in the section titled
“Risk Factors” and elsewhere in this prospectus. Because forward-looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events.
The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ
materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update
or revise any forward-looking statements contained herein until after we distribute this prospectus, whether as a result of any new information,
future events or otherwise.
In
addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These
statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms
a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate
that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are
inherently uncertain and you are cautioned not to unduly rely upon these statements.
INDUSTRY
AND OTHER DATA
This
prospectus contains industry, market and competitive position data from our own internal estimates and research as well as industry and
general publications and research surveys and studies conducted by third parties. Industry publications, studies and surveys generally
state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness
of such information. Our internal data and estimates are based upon information obtained from trade and business organizations and other
contacts in the markets in which we operate and our management’s understanding of industry conditions. While we believe that each
of these studies and publications is reliable, we have not independently verified market and industry data from third-party sources.
While we believe our internal company research is reliable and the market definitions are appropriate, neither such research nor definitions
have been verified by an independent source.
The
industry in which we operate is subject to risks and uncertainties due to a variety of factors, including those described in the section
titled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in the estimates
made by the independent parties and by us.
USE
OF PROCEEDS
We
will not receive any proceeds from the sale of the shares of Common Stock upon the conversion of the Note by the Selling Stockholders.
However, we will receive proceeds from the exercise of the Common Warrants by the Selling Stockholders
to the extent they are exercised for cash. We estimate that the maximum proceeds that we may receive from the exercise of the Common
Warrants, assuming all the Common Warrants from the First Tranche (as defined below) are exercised at their exercise price of $1.20 and
subject to the amount of additional Warrants issuable in the Second Tranche (as defined below) under a Securities Purchase Agreement
between the Company and the Investor, dated as of October 4, 2023 (the “October 2023 SPA”), will be at a minimum $1,040,042.
We do not know, however, whether any of the Common Warrants will be exercised or, if any of the Common Warrants are exercised, when they
will be exercised. It is possible that the Warrants will expire and never be exercised. There are circumstances under which the Common
Warrants may be exercised on a cashless basis. In these circumstances, even if the Common Warrants are exercised, we may not receive
any proceeds, or the proceeds that we do receive may be significantly less than what we might expect. We intend to use the aggregate
net proceeds from the exercise of the Common Warrants for general corporate purposes, including working capital. The actual allocation
of proceeds realized from the exercise of these Common Warrants will depend upon the amount and timing of such exercises, our operating
revenues and cash position at such time and our working capital requirements. The Selling Stockholders will pay any expenses incurred
by the Selling Stockholders for brokerage, accounting, tax or legal services or any other expenses incurred by the Selling Stockholders
in disposing of its shares of Common Stock. We will bear all other costs, fees and expenses incurred in effecting the registration of
the shares covered by this prospectus, including, without limitation, all registration fees and fees and expenses of our counsel and
our accountants.
MARKET
PRICE OF OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market
Information
Our
Common Stock is listed on the NYSE American under the symbol “TPET.” A description of our Common Stock is set forth under
the heading “Description of Our Securities” beginning on page 77 of this prospectus.
The
last reported sale price for our Common Stock on December 5, 2023 was $0.325 per share.
Holders
As
of December 5, 2023, there were 30,794,720 shares of our Common Stock, held by approximately 46 stockholders of
record. No shares of our preferred stock are designated, issued or outstanding.
DIVIDEND
POLICY
We
have never declared or paid any cash dividends on our capital stock. We intend to retain future earnings, if any, to finance the operation
and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination related
to our dividend policy will be made at the discretion of our board of directors after considering our financial condition, results of
operations, capital requirements, business prospects and other factors the board of directors deems relevant, and subject to the restrictions
contained in any future financing instruments.
PRIVATE
PLACEMENT
On
October 4, 2023, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with an institutional
investor (the “Investor”). The Securities Purchase Agreement provides for loans in an aggregate principal amount of up to
$3.5 million under two tranches. On October 4, 2023, the initial closing date, the investor funded approximately $1.86 million (less
commitment fees and net of original issue discount of 7%) in a private placement offering, pursuant to the terms and conditions of the
Securities Purchase Agreement (the “Private Placement”), and the Investor also agreed to fund the remaining $1.395 million
(less commitment fees and net of original issue discount of 7%) in a second closing, after the Company provides written confirmation
to the investor and subject to the mutual consent of the Investor and the Company that (i) stockholder approval of the transactions has
been obtained, for the purpose of complying with the NYSE/NYSE American Rules requiring stockholder approval for the issuance by the
Company of shares of its Common Stock, in excess of 5,899,299 share of Common Stock (20% of 29,496,492 shares of Common Stock outstanding
on October 4, 2023, in connection with the conversion and exercise of the securities issued pursuant to the provision of the Securities
Purchase Agreement); (ii) that a Registration Statement on Form S-1 has been declared effective by the SEC for the registration of the
shares of Common Stock issuable upon conversion of the Note (the “Conversion Shares”) and the Common Warrant (as defined
below) (the “Common Warrant Shares”) and (iii) there is no Event of Default (as defined in the Securities Agreement)
that has occurred or will occur as a result of such additional funding and in full force and effect.
In
consideration for the investor’s funding provided at the initial closing under the Securities Purchase Agreement, on October 4,
2023, the Company issued and sold to the Investor, in the Private Placement, (A) a senior secured convertible promissory note in the
aggregate principal amount of $2,000,000 (the “Note”) and (B) a warrant to purchase up to 866,702 shares of Common Stock
at an initial exercise price of $1.20 per share, subject to certain adjustments (the “Common Warrant”).
In
connection with the Securities Purchase Agreement, on October 4, 2023, the Company also entered into a registration rights agreement
(the “Registration Rights Agreement”) with the investor pursuant to which the Registrable Securities (as defined therein)
held by the investor, subject to certain conditions, are entitled to registration under the Securities Act. Pursuant to Registration
Rights Agreement, the Company is required to, within 30 days after the date thereof (i.e. November 3, 2023), file with the SEC (at the
Company’s sole cost and expense) the Resale Registration Statement to register the Conversion Shares and the Common Warrant Shares
and to cause such Resale Registration Statement to be declared effective within 60 days after the applicable filing date of the Resale
Registration Statement.
Under
the terms of the Securities Purchase Agreement, the Registration Rights Agreement and the Note, the Company is required to reserve and
register an aggregate of 13,161,976 shares of Common Stock in the Resale Registration Statement, which represents 200% of the total number
of shares of Common Stock issuable upon conversion of the Note at an exercise price equal to the floor price of $0.35 per share set forth
in the Note and 200% of the total number of shares of Common Stock issuable upon exercise of the Common Warrant.
Additionally,
pursuant to the terms of an Engagement Agreement, dated May 17, 2023, between the Company and the Placement Agent, the Company issued
the Placement Agent Warrant to the Placement Agent exercisable for up to 83,333 shares of Common Stock, at an initial exercise price
of $1.32 per share, subject to certain adjustments. The Company has also agreed to include the 83,333 Placement Agent Warrant Shares
for registration in the Resale Registration Statement.
SELLING
STOCKHOLDERS
The
shares of Common Stock being offered by the Selling Stockholders are those issuable to the Selling Stockholders upon conversion of the
Note and/or exercise of the Warrants. For additional information regarding the issuances of the Note and the Warrants, see “Private
Placement” above. We are registering the shares of Common Stock in order to permit the Selling Stockholders to offer the shares
for resale from time to time. Except for the ownership of the shares of Common Stock and the Warrants, and as otherwise provided below,
the Selling Stockholders have not had any material relationship with us within the past three years.
The
table below lists the Selling Stockholders and other information regarding the beneficial ownership of the shares of Common Stock by
each of the Selling Stockholders. The second column lists the number of shares of Common Stock beneficially owned by each of the Selling
Stockholders, based on its ownership of the shares of Common Stock, the Note (based on the number of Conversion Shares which may be received
upon conversion of the Note at a conversion price of $0.35 per share (the floor price under the Note)) and the Warrants, as applicable,
immediately prior to this Offering, assuming the full conversion of the Note, by the Investor, and the full exercise of the applicable
Warrants, by the Selling Stockholders for all shares of Common Stock thereunder, without regard to any limitations on exercises. The
third and fourth columns assume the sale of shares of Common Stock convertible under the Note, by the Investor, and exercisable by the
Selling Stockholders under the Warrants, pursuant to this prospectus.
The
third column also lists the shares of Common Stock being registered by this prospectus for the resale of the shares of Common Stock by
the Selling Stockholders.
In
accordance with the terms of a registration rights agreement with the Investor, this prospectus generally covers the resale of the maximum
number of shares of Common Stock issuable upon conversion of the Note and the exercise of the Common Warrant by the Investor. This prospectus
also covers the resale of the maximum number of shares of Common Stock issuable upon conversion of the Placement Agent Warrant by the
Placement Agent.
Under
the terms of the Note and the Warrants, a Selling Stockholder may not exercise the Investor may not convert the Note and neither of the
Selling Stockholders may exercise the Common Warrant or the Placement Agent Warrant, as applicable, to the extent such exercise would
cause such Selling Stockholder, together with its affiliates and attribution parties, to beneficially own a number of shares of Common
Stock which would exceed 4.99% or 9.99%, as applicable, of our then outstanding Common Stock following such conversion or exercise, as
applicable, excluding for purposes of such determination shares of Common Stock issuable upon conversion of the Note or exercise of such
Warrants which have not been exercised. The number of shares of Common Stock ,in the table below, being registered by this prospectus
for resale by the Selling Stockholders, does not reflect this limitation. The Selling Stockholders may sell all, some or none of their
shares in this offering. See “Plan of Distribution.”
| Name of
Selling Stockholders |
|
Shares
Beneficially
Owned
prior
to
Offering |
|
|
Shares
Registered
by
this
Prospectus |
|
|
Shares
Beneficially
Owned
after
Offering |
|
|
Percentage
of
Shares
Beneficially
Owned
after
Offering
(1) |
|
| L1 Capital Global Opportunities
Master Fund Ltd. |
|
|
1,549,178 |
(2) |
|
|
13,161,976 |
(3) |
|
|
— |
|
|
|
— |
|
| Spartan Capital Securities LLC |
|
|
100,000 |
(4) |
|
|
83,333 |
(5) |
|
|
100,000 |
|
|
|
*- |
|
| * |
Less than 1% |
| |
|
| (1) |
Percentages
are based on 30,794,720 shares of Common Stock outstanding as of December 5, 2023. |
| |
|
| (2) |
Beneficial ownership reflects shares of Common Stock which are convertible
under the Note, within the next 60 days, at a conversion price of $1.20 per share, and excludes additional shares of Common Stock underlying
the Note, and an additional 866,702 shares of Common Stock underlying the Common Warrant, at an exercise price of $1.20 per share, subject
to a beneficial ownership limitation (the “Beneficial Ownership Limitation”) on the Investor’s ability to convert the
Note and exercise the Common Warrant, to the extent any such conversion or exercise would cause the Investor to beneficially own more
than 4.99% of the outstanding shares of the Company, which may be increased to up to 9.99% with 61 days’ notice. David Feldman and
Joel Arber are the Directors of L1 Capital Global Opportunities Master Fund, Ltd. As such they may be deemed to be beneficial owners of
such shares of Common Stock. To the extent Mr. Feldman and Mr. Arber are deemed to beneficially own such securities, Mr. Feldman and Mr.
Arber disclaim beneficial ownership of these securities for all other purposes. The business address of L1 Capital Global Opportunities
Master Fund., Ltd. is 161A Shedden Road, 1 Artillery Court, PO Box 10085, Grand Cayman KY1-1001, Cayman Islands. |
| |
|
| (3) |
Consists
of (i) 13,161,976 shares of Common Stock, (ii) 11,428,572 shares of Common Stock issuable upon full conversion of the Note
and (iii) 1,733,404 shares of Common Stock issuable upon full exercise of the Common Warrant. This reflects 200% of the number of
shares (i) convertible under the Note at a conversion price of $0.35 (the floor price under the Note) and (ii) exercisable
under the Common Warrant, as required to be registered under the terms of the October 2023 SPA and the related registration rights
agreement between the Company and the Investor (the “October 2023 RRA”). This does not reflect the Beneficial Ownership
Limitation. |
| |
|
| (4) |
Consists
of 100,000 shares of Common Stock that may be exercised under an outstanding warrant, within the next 60 days, at an exercise price
of $3.30 per share. The Placement Agent Warrant may not be exercised for any of the 83,333 shares of Common Stock, available
thereunder, within the next 60 days. The business address of Spartan Capital Securities LLC is 45 Broadway, 19th Floor,
New York, NY 10006. |
| |
|
| (5) |
Consists of all shares available for exercise under
the Placement Agent Warrant, notwithstanding that the Placement Agent Warrant is not exercisable for any of the shares of Common
Stock thereunder within the next 60 days. |
Material
Relationships with Selling Stockholders
Except
for the ownership of the Note and the Warrants, and the transactions described below, none of the Selling Stockholders have had any material
relationship with us within the past three years:
Initial
Public Offering
On
April 17, 2023, we entered into an Underwriting Agreement with the Placement Agent, as representative of the underwriters named on Schedule
1 thereto relating to a firm commitment underwritten initial public offering of our Common Stock. On April 20, 2023, pursuant to the
Underwriting Agreement, we issued a warrant to the Placement Agent to purchase up to an aggregate of 100,000 shares of Common Stock.
As of October 31, 2023, this warrant had not been exercised for any of the shares available for exercise thereunder.
PLAN
OF DISTRIBUTION
Each
Selling Stockholder of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any
or all of their securities covered hereby on the principal trading market or any other stock exchange, market or trading facility on
which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may
use any one or more of the following methods when selling securities:
| |
● |
ordinary brokerage transactions
and transactions in which the broker-dealer solicits purchasers; |
| |
|
|
| |
● |
block trades in which the
broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate
the transaction; |
| |
|
|
| |
● |
purchases by a broker-dealer
as principal and resale by the broker-dealer for its account; |
| |
|
|
| |
● |
an exchange distribution
in accordance with the rules of the applicable exchange; |
| |
|
|
| |
● |
privately negotiated transactions; |
| |
|
|
| |
● |
settlement of short sales; |
| |
|
|
| |
● |
in transactions through
broker-dealers that agree with the Selling Stockholders to sell a specified number of such securities at a stipulated price per security; |
| |
|
|
| |
● |
through the writing or
settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
| |
|
|
| |
● |
a combination of any such
methods of sale; or |
| |
|
|
| |
● |
any other method permitted
pursuant to applicable law. |
The
Selling Stockholders may also sell securities under Rule 144 or any other exemption from registration under the Securities Act, if available,
rather than under this prospectus.
Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser)
in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in
excess of a customary brokerage commission in compliance with FINRA Rule 2121; and in the case of a principal transaction a markup or
markdown in compliance with FINRA Rule 2121.
In
connection with the sale of the securities or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they
assume. The Selling Stockholders may also sell securities short and deliver these securities to close out their short positions, or loan
or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option
or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the
delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer
or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The
Selling Stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters”
within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers
or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the securities.
The
Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities. The Company
has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under
the Securities Act.
We
agreed to keep this prospectus effective until the earlier of: (i) the date that all securities covered by the by the October 2023 RRA
have been sold, or (ii) the two years after the date that the Registration Statement is declared effective. The resale securities will
be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain
states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is available and is complied with.
Under
applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously
engage in market making activities with respect to the shares of common stock for the applicable restricted period, as defined in Regulation
M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the
shares of common stock by the Selling Stockholders or any other person. We will make copies of this prospectus available to the Selling
Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the
sale (including by compliance with Rule 172 under the Securities Act).
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You
should read the following discussion and analysis of financial condition and operating results together with our financial statements
and the related notes and other financial information included elsewhere in this prospectus. This discussion contains forward-looking
statements that involve risks and uncertainties. We assume no obligations to update any of these forward looking statements. As a result
of many factors, such as those set forth in the section of the prospectus captioned “Risk Factors” and elsewhere in this
prospectus, our actual results may differ materially from those anticipated in these forward-looking statements. For convenience of presentation
some of the numbers have been rounded in the text below.
Overview
The
Company was incorporated in the state of Delaware on July 19, 2021. The Company is an independent energy company engaged in the acquisition,
exploration and development of oil and gas properties, currently primarily in the approximately 9,300 acre South Salinas Project (the
“South Salinas Project”) and the McCool Ranch Oil Field (the “McCool Ranch Oil Field”), both of which are located
in Monterey, California. The Company is headquartered in Bakersfield, California, with its principal offices located at 5401 Business
Park, Suite 115, Bakersfield, CA, 93309.
We
have no revenue generating operations as of the date of this prospectus.
South
Salinas Project
We
initiated operations with the acquisition from Trio LLC of 82.75% working interest in the South Salinas Project under the terms of a
Purchase and Sale Agreement (the “PSA”) dated September 14, 2021. Our working interest was later increased by 3.026471% and
we currently hold an approximate 85.75% working interest and an approximate 68.6% net revenue interest (after all royalties) in the South
Salinas Project. The working interest we own includes leases, wells, inventory and 3D seismic data.
The
PSA stipulated that we were to pay to Trio LLC $4,000,000.00 in cash (the “Cash Consideration”) and to issue to Trio LLC
4,900,000 shares of our Common Stock (the “Equity Consideration”). The Cash Consideration at that time was structured to
be paid to Trio LLC in a First Installment of $100,000.00 as a fee, in a Second Installment of $200,000.00 to be used for select expenditures
(e.g., road construction and well-site preparation) as provided in the HV-1 AFE, and a Third Installment of $3,700,000.00 of which $2,000,000.00
was a fee and of which $1,700,000.00 was to be used for select expenditures in drilling and completing the HV-1 well as provided for
in the HV-1 AFE. The First, Second and Third Installment payments were paid in the amounts stipulated under the PSA, except that some
of the $1,700,000.00 portion of the Third Installment was reallocated to cover other costs under various amendments to the PSA, and the
final payment of the Third Installment was changed under the Fourth Amendment to the PSA to be the actual amount of an updated HV-1 AFE
and not the prior fixed amount of $1,700,000.00. The Cash Consideration due to Trio LLC has been fully paid and the Equity Consideration
due to Trio has been satisfied through share issuance. At the time of the acquisition, the share issuance in the Equity Consideration
constituted 45% of the total number of outstanding shares of the Company. The Company accounted for the purchase as an asset acquisition,
as prescribed in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805
– Business Combinations. The asset and associated asset retirement obligations (“ARO”) were recorded based on
relative fair value at the estimated fair value of the consideration paid.
There
are two contiguous areas of notable oil/gas accumulations in the South Salinas Project, being the Humpback Area (the “Humpback
Oil Field”) that occurs in the northern part of the project, and the Presidents Area (the “Presidents Oil Field) that occurs
in the southern part of the project. Discovery wells have been drilled and completed at both Humpback Oil Field and Presidents Oil Field.
The HV-3A well is the first well drilled at the Presidents Oil Field and is its discovery well. About five wells have been drilled at
the Humpback Oil Field and of these we consider the BM 2-2 well as its discovery well.
We
believe the South Salinas Project has the potential to be significant, with an estimated 39.0 million barrels of oil (“MMBO”)
plus 40.0 billion cubic feet of gas (“BCFG”), or 45.7 million barrels of oil equivalent (“BOE”), in Probable
(P2) Undeveloped reserves and an approximate 92.4 MMBO plus 148.8 BCFG, or 117.2 million BOE, in Possible (P3) Undeveloped reserves.
Note that the conversion rate used is 6.0 Mcf per 1 BOE.
We
own approximately 30 square miles of three dimensional seismic data (“3D seismic”) at the project. An integrated interpretation
of the 3D seismic data and of well data indicates that Presidents is a large anticlinal feature covering an area of approximately 1,300
acres, with a major structural, anticlinal high at the location of the HV-3A discovery well, and with two separate, four-way closed anticlines
at the northwest, down-plunge-end of the feature. The structural feature at Presidents is best characterized as a positive flower structure
resulting from transpressional deformation along strike slip faults including the major Rinconada Fault.
One
of our objectives was to drill the HV-1 confirmation well at the Presidents Oil Field immediately after our IPO. This objective has been
accomplished. The HV-1 well spud on about May 5, 2023, and was completed at its total depth (“TD”) of about 6,641feet (measured
depth) on about May 15, 2023.
The
HV-1 well is located at Presidents Oil Field about two miles northwest of the HV-3A discovery well and for this reason it is considered
a “confirmation well” intended to help confirm the size of lateral extent of the field. The HV-1 surface hole location (“SHL”)
is located in about the center of T24S-R10E-Section 14. The well was directionally drilled approximately 2,600 feet toward the southeast
and its bottom hole location (“BHL”) is located in T24S-R10E-Section 13.
The
HV-1 confirmation well is located on the larger of the aforementioned two down-plunge, four-way closed anticlines. The down-plunge anticline
at the HV-1 well covers about 160 acres, or about 12% of Presidents Oil Field. Establishing commercial oil/gas production at the HV-1
well would help confirm that there are about 1,300 oil/gas productive acres at Presidents, whereas noncommercial oil/gas production at
the HV-1 well might reduce the potential productive area at Presidents by about 12% to about 1,140 acres.
There
were primarily three reservoir objectives in the HV-1 well, being the Yellow Zone (aka Yellow Chert),
the underlying Brown Zone (aka Brown Chert) and the underlying Mid-Monterey Clay, all of which are stratigraphic subunits of the Miocene-age
Monterey Formation. The Yellow and Brown zones are both attributed oil and gas reserves at Presidents in the Company’s reserve
report as filed with the SEC. The Mid-Monterey Clay is nowhere assigned reserves in the Company’s reserve report, although it did
have significant oil/gas shows in the HV-3A discovery well and periodically flowed oil and gas to surface at said well.
The
3D seismic data indicate that the Yellow and Brown zones have four-way closure (i.e., anticlinal rollover in one of the subsidiary, down-plunge
anticlines) at the location of the HV-1 well, whereas at this location the Mid-Monterey Clay may have fault closure (within the positive
flower structure) but lacks rollover. The directional drilling plan for the HV-1 well was designed such that the well would penetrate
the Yellow and Brown zones near the tops of their anticlinal closures and to continue downward into the Mid-Monterey Clay where anticlinal
closure apparently does not occur.
The
Yellow Zone, Brown Zone and Mid-Monterey Clay were encountered in the HV-1 well largely as predicted including with respect to depth,
thickness, lithology, wireline-log characteristics and oil and gas shows including free
oil in cuttings and in the mud pit. The Company believes that the HV-1 well has confirmed that
there is a major oil and gas accumulation in the Presidents Oil Field, as the Company announced in a press release on May
16, 2023.
Confirmation
of a major oil and gas accumulation by itself does not confirm whether economic oil/gas production can be established. The HV-1 well
is currently being production tested to evaluate commerciality. Production testing at the HV-1 well is currently being carried-out from
the bottom up (i.e., by testing the deepest zone first and working upward to shallower zones). Initial testing of the Mid-Monterey Clay,
which is the deepest zone penetrated in the HV-1 well, and of the overlying Brown Zone, has been carried-out. Testing of the Yellow Zone,
which overlies the Brown Zone, was expected to commence about one week prior to the date of this filing. Oil and gas were produced during
the testing of both the Mid-Monterey Clay and the Brown Zone but as of the date of this filing a determination has not yet been made
as to whether the HV-1 well is capable of commercial oil/gas production.
The
Mid-Monterey Clay is the deepest zone penetrated in the HV-1 well and initial testing of this interval was carried-out first, before
the testing of overlying zones. An interval of the Mid-Monterey Clay was perforated and acidized (for borehole cleanup) and it was then
tested via swabbing. “Swabbing” is a process that pulls liquids (e.g., oil, gas, water, drilling mud, acid used for borehole
cleanup, etc.) that are in a well to the surface (e.g., to storage tanks) by pulling up a cable with attached concave-up, rubber swab
cups. The liquids are then inspected at the surface to evaluate volumes, relative percentages of the various liquids and other parameters
such oil gravity, water salinity, etc. On average a swab run may be made every 10 or 15 minutes or so, recovering commonly about 4 to
6 barrels of fluid each run. The Mid-Monterey Clay was swabbed for about 11 days, during which time it commonly recovered liquids at
rates of about 300-500 barrels of fluid per day (“BFPD”), including on average about 2 to 3 barrels of oil per day (“BOPD”)
and some natural gas. Oil was recovered at rates up to about 125 BOPD when it was possible to lower the fluid level in the well. It has
not yet been determined whether the Mid-Monterey Clay is capable of commercial oil/gas production in the HV-1 well.
The
second interval that underwent initial testing in the HV-1 well is the Brown Zone (aka “Brown Chert”), which directly
overlies the Mid-Monterey Clay. Most of the Brown Zone was perforated and acidized (for borehole cleanup) and it was then tested via
swabbing for about 7 days, during which time it commonly recovered liquids at rates of about 400-700 BFPD, including on average
about 1 to 2 BOPD and some natural gas. Oil was recovered during swabbing at rates up to about 19 BOPD when it was possible to
minimally lower the fluid level in the well. The Brown Zone was then put on pump for about 8 days during which time it commonly
recovered liquids at rates of about 320 BFPD with minor amounts of oil and natural gas. An upper interval of the Brown Zone was then
put on pump for about 5 days during which time it commonly recovered liquids at rates of about 220 BFPD including oil at rates that
could not be accurately determined. It has not yet been determined whether the Brown Zone is capable of commercial oil/gas
production in the HV-1 well.
The
latest interval to undergo initial testing in the HV-1 well is the Yellow Zone (aka “Yellow Chert”), which overlies the
Brown Zone. An upper part of the Yellow Zone was perforated on October 20, 2023. The results from this testing will be disclosed
when available.
After
the testing of the Yellow Zone is complete, the Company may determine to test an interval in the Upper-Monterey Clay that overlies the
Yellow Zone. Subsequently and/or otherwise, the Company expects to put one or more of the Mid-Monterey Clay, Brown Zone, Yellow Zone
and/or Upper-Monterey Clay intervals on pump for continued testing and/or oil/gas production.
The
Company remains optimistic that the HV-1 well will prove capable of commercial oil/gas production. However, as noted elsewhere above,
a determination has not yet been made as to whether the HV-1 well is capable of commercial oil/gas production.
The
Company has drilling permits from Monterey County for two additional wells at the South Salinas Project, being the HV-2 well and the
HV-4 well. The Company may drill one or both of these wells in the fourth quarter of 2023 or the first quarter of 2024. The Company is
evaluating whether to drill both of these wells into Presidents Oil Field, or to drill one into Presidents Oil Field and one into Humpback
Oil Field. This determination will be made, in part, based on the results of the initial oil and gas production at the HV-1 well. If
production at the HV-1 well is good-to-excellent, then the Company may determine it appropriate to drill both the HV-2 and HV-4 wells
into the Presidents Oil Field.
For
the period from July 19, 2021 (inception) through October 31, 2021, we generated no revenues, reported a net loss of $102,064, and cash
flow used in operating activities of $258,923. For the year ended October 31, 2022, we generated no revenues, reported a net loss of
$3,800,392 and cash flows used in operating activities of $502,144. For the nine months ended July 31, 2023, we generated no revenues,
reported a net loss of $5,224,839, and cash flows used in operating activities of $2,542,360. As of July 31, 2023, we had an accumulated
deficit of $9,127,295. There is substantial doubt regarding our ability to continue as a going concern as a result of our accumulated
deficit and no source of revenue sufficient to cover our cost of operation as well as our dependence on private equity and financings.
See “Risk Factors—Risks Relating to Our Business—We have a history of operating losses, our management has concluded
that factors raise substantial doubt about our ability to continue as a going concern and our auditor has included an explanatory paragraph
relating to our ability to continue as a going concern in its audit report for the year ended October 31, 2022 and for the period from
July 19, 2021 (inception) through October 31, 2021.”
Planned
Oil and Gas Activities
The
Company will continue testing of the HV-1 well, as discussed at length elsewhere in this document.
The
Company has drilling permits from Monterey County for two additional wells at the South Salinas Project, being the HV-2 well and the
HV-4 well. The Company may drill one or both of these wells in Q4, 2023 or Q1, 2024.
The
Company will continue to pursue additional permits for the South Salinas Project.
The
Company is making an investment to restart production at McCool Ranch Oil Field.
The
Company will continue to review potential acquisitions of oil and gas opportunities.
Going
Concern Considerations
The
Company has not generated any revenues and has incurred significant losses since inception. As of July 31, 2023, the Company has an accumulated
deficit of $9,127,295 and working capital of $807,614, and for the three and nine months ended July 31, 2023, net losses of $2,170,601
and $5,224,839, respectively. To date, the Company has been funding operations through proceeds from the issuance of common stock, financing
through certain investors and the consummation of its IPO in April 2023. There is substantial doubt regarding our ability to continue
as a going concern as a result of our accumulated deficit and no source of revenue sufficient to cover our costs of operations as well
as our dependence on private equity and financing. See “Risk Factors-Risks Relating to Our Business-We have a history of operating
losses, our management has concluded that factors raise substantial doubt about our ability to continue as a going concern and our auditor
has included an explanatory paragraph relating to our ability to continue as a going concern in its audit report for the year ended October
31, 2022 and for the period from July 19, 2021 (inception) through October 31, 2021.”
The
accompanying condensed financial statements have been prepared assuming the Company will continue as a going concern. As we are not generating
revenues, we need to raise a significant amount of capital to pay for our development, exploration, drilling and operating costs. While
the Company raised capital in April 2023 in connection with its IPO, and also raised additional capital in the convertible note financing,
the first closing of which occurred on October 4, 2023 and will receive additional capital in the second closing of this financing occurs,
we expect to require additional funding in the future and there is no assurance that we will be able to raise additional needed capital
or that such capital will be available under favorable terms. We are subject to all the substantial risks inherent in the development
of a new business enterprise within an extremely competitive industry. Due to the absence of a long-standing operating history and the
emerging nature of the markets in which we compete, we anticipate operating losses until we can successfully implement our business strategy,
which includes all associated revenue streams. We may never achieve profitable operations or generate significant revenues.
The
Company will require additional capital funding in order to drill our planned HV-2 and HV-4 wells and to provide for additional development
costs and other payment obligations and operating costs until our planned revenue streams are fully-implemented and begin to offset our
operating costs, if ever.
Since
our inception, we have funded our operations with the proceeds from equity and debt financing. We have experienced liquidity issues due
to, among other reasons, our limited ability to raise adequate capital on acceptable terms. We have historically relied upon the issuance
of equity and promissory notes that are convertible into shares of our common stock to fund our operations and have devoted significant
efforts to reduce that exposure. We anticipate that we will need to issue equity to fund our operations for the foreseeable future. If
we are unable to achieve operational profitability or we are not successful in securing other forms of financing, we will have to evaluate
alternative actions to reduce our operating expenses and conserve cash.
The
accompanying condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal
course of business. Accordingly, the condensed financial statements do not include any adjustments relating to the recoverability of
assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The condensed
financial statements included in this report also include a going concern footnote. See Note 3 to our condensed financial statements.
Emerging
Growth Company Status
The
Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and
it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are
not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of
Section 404(b) of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports
and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder
approval of any golden parachute payments not previously approved. Further, Section 102(b)(1) of the JOBS Act exempts emerging growth
companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that
have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange
Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to
opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election
to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard
is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company,
can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the
Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company
which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting
standards used.
RESULTS
OF OPERATIONS
Nine
Months Ended July 31, 2023 compared to the Nine Months Ended July 31, 2022 (unaudited)
| | |
For the Nine Months Ended July 31, | | |
| | |
| |
| | |
2023 | | |
2022 | | |
Change | | |
% Change | |
| Operating expenses: | |
| | | |
| | | |
| | | |
| | |
| Exploration expenses | |
$ | 225,052 | | |
$ | 28,669 | | |
$ | 196,383 | | |
| 685.0 | % |
| General and administrative expenses | |
| 2,215,775 | | |
| 685,565 | | |
| 1,530,210 | | |
| 223.2 | % |
| Stock-based compensation expense | |
| 896,947 | | |
| - | | |
| 896,947 | | |
| 100.0 | % |
| Accretion expenses | |
| 2,084 | | |
| 2,084 | | |
| - | | |
| - | |
| Total operating expenses | |
| 3,339,858 | | |
| 716,318 | | |
| 2,623,540 | | |
| 366.3 | % |
| Loss from Operations | |
| (3,339,858 | ) | |
| (716,318 | ) | |
| (2,623,540 | ) | |
| 366.3 | % |
| | |
| | | |
| | | |
| | | |
| | |
| Other expenses: | |
| | | |
| | | |
| | | |
| | |
| Interest expenses | |
| 746,930 | | |
| 1,046,106 | | |
| (299,176 | ) | |
| 28.6 | % |
| Penalty fees | |
| - | | |
| 1,322,933 | | |
| (1,322,933 | ) | |
| (100.0 | )% |
| Loss on settlement | |
| 13,051 | | |
| - | | |
| 13,051 | | |
| 100.0 | % |
| Loss on note conversion | |
| 1,125,000 | | |
| - | | |
| 1,125,000 | | |
| 100.0 | % |
| Total other expenses | |
| 1,884,981 | | |
| 2,369,039 | | |
| (484,058 | ) | |
| (20.4 | )% |
| Loss before income taxes | |
| (5,224,839 | ) | |
| (3,085,357 | ) | |
| (2,139,482 | ) | |
| 69.3 | % |
| Income tax benefit | |
| - | | |
| - | | |
| - | | |
| - | |
| Net loss | |
$ | (5,224,839 | ) | |
$ | (3,085,357 | ) | |
$ | (2,139,482 | ) | |
| 69.3 | % |
Exploration
expenses
Exploration
expenses increased by approximately $0.2 million as compared to the prior year period due to an increase in exploratory, geological,
and geophysical costs incurred during the year.
General
and administrative expenses
General
and administrative expenses increased for the nine months ended July 31, 2023 by approximately $1.5 million as compared to the prior
period due to increased advertising and marketing fees of $380,000 that were part of the Company’s post IPO investor relations’
programs, consulting fees of $406,000, director fees of $80,000, increased legal fees of approximately $200,000 and increased salaries
expenses of approximately $320,000.
Stock-based
compensation expense
Stock-based
compensation increased by approximately $0.9 million for the nine months ended July 31, 2023 as compared to the prior period due to the
amortization of approximately $575,000 in expense for restricted shares, as well as expense for shares issued for services in the amount
of approximately $285,000.
Accretion
expenses
For
the nine months ended July 31, 2023, accretion expenses remained consistent with that of the prior year period. The Company expects accretion
expenses to remain constant throughout the remaining calendar year of 2023.
Other
expenses, net
For
the nine months ended July 31, 2023, Other expenses, net remained relatively the same when compared to the prior year period. The minimal
change of approximately $0.5 million is due to i) an overall decrease in non-cash interest expense of $0.3 million from the amortization
of debt discounts in the current nine-month period and ii) a net decrease of $0.2 million from an off-setting of one-time charges; one
for $1.3 million in penalty fees in the prior-year period and the second of a loss on conversion of $1.1 million in the current period.
Year
Ended October 31, 2022 compared to the Period from July 19, 2021 (inception) through October 31, 2021
For
the year ended October 31, 2022, operating expenses increased by approximately $742,079, or 1160%, to $806,028 compared to operating
expenses of $63,949 for the period from July 19, 2021 (inception) through October 31, 2021. The operating expenses for the year ended
October 31, 2022 was attributable to exploration expense of $28,669, general and administrative expenses of $365,390, legal fees of $409,191
and accretion expense of $2,778. We also incurred other expenses for the year ended October 31, 2022 of $2,994,364, of which $1,661,981
was attributable to interest expenses and $1,322,933 was attributable to penalty fees associated with debt. The operating expenses for
the period from July 19, 2021 (inception) through October 31, 2021 were attributable to exploration expense of $38,763, general and administrative
expenses of $17,313, legal fees of $7,514 and accretion expense of $359. We also incurred other expenses of $38,115, which was attributable
to interest expenses.
Net
Loss
For
the year ended October 31, 2022, net loss increased by approximately $3,698,328, or 3623%, to approximately $3,800,392 compared to net
loss of $102,064 for the period from July 19, 2021 (inception) through October 31, 2021.
Liquidity
and Capital Resources
Working
Capital/(Deficiency)
Our
working capital as of July 31, 2023, in comparison to our working capital deficiency as of October 31, 2022, can be summarized as follows:
| | |
July 31, | | |
October 31, | |
| | |
2023 | | |
2022 | |
| Current assets | |
$ | 1,630,318 | | |
$ | 1,752,529 | |
| Current liabilities | |
| 822,704 | | |
| 6,710,652 | |
| Working capital (deficiency) | |
$ | 807,614 | | |
$ | (4,958,123 | ) |
Current
assets decreased slightly because of i) an increase to the cash account of approximately $1.4 million, offset by ii) a decrease in deferred
offering costs of approximately $1.6 million, both of which are due to the consummation of our IPO, which resulted in net cash proceeds
of $4,940,000 and the complete reduction of deferred offering costs asset account. The decrease in current liabilities is due to i) the
conversion of senior secured convertible promissory notes with an aggregate principal amount of $4.5 million into shares upon completion
of the IPO and ii) the repayment of a) a related party notes payable for approximately $1.0 million and b) a bridge note in the amount
of approximately $440,000, both of which occurred upon consummation of our IPO.
As
of July 31, 2023, we had $1,630,318 in current assets and $822,704 in current liabilities. We had $1,506,028 in cash and cash equivalents
and our accumulated deficit was $9,127,295.
As
of October 31, 2022, we had $1,752,529 in current assets and $6,710,652 in current liabilities. We had $73,648 in cash and our accumulated
deficit was $3,902,456.
Cash
Flows
| | |
Year ended | | |
For
the Period from July 19, 2021 (inception) through | | |
Nine Months ended | |
| | |
October
31, 2022 | | |
October 31, 2021 | | |
July 31, 2023 | | |
July 31, 2022 | |
| | |
| | |
| | |
| | |
| |
| Net Cash used in operating activities | |
$ | (502,144 | ) | |
$ | (258,923 | ) | |
$ | (2,542,360 | ) | |
$ | (425,053 | ) |
| Net Cash used in investing activities | |
| - | | |
| (300,000 | ) | |
| (1,804,050 | ) | |
| - | |
| Net Cash provided by financing activities | |
| 496,915 | | |
| 637,800 | | |
| 5,778,790 | | |
| 387,700 | |
| Net increase (decrease) in cash | |
$ | (5,229 | ) | |
$ | 78,877 | | |
$ | 1,432,380 | | |
$ | (37.353 | ) |
Cash
Flows From Operating Activities
For
the nine months ended July 31, 2023 and 2022, cash used in operating activities was $2,542,360 and $425,053, respectively. The cash used
in operations for the nine months ended July 31, 2023 was primarily attributable to our net loss of $5,224,839, adjusted for non-cash
expenses in the aggregate amount of $2,481,724, as well as $200,756 of net cash provided to fund changes in the levels of operating assets
and liabilities. Our cash used in operations for the nine months ended July 31, 2022 was primarily attributable to our net loss of $3,085,357,
adjusted for non-cash expenses in the aggregate amount of $2,266,572, as well as $393,732 of net cash provided to fund changes in the
levels of operating assets and liabilities.
For
the year ended October 31, 2022, we used $502,144 of cash in our operating activities, which was primarily attributable to increased
interest expenses and penalty fees related to debt, as well as increased expenses related to our IPO.
For
the period from July 19, 2021 (inception) through October 31, 2021, we used $258,923 of cash in our operating activities, which was primarily
attributable to increased expenses related to our IPO.
Cash
Flows From Investing Activities
For
the nine months ended July 31, 2023 and 2022, cash used in investing activities was $1,804,050 and $0, respectively. The cash used during
the current period is attributable to approximately $2.9 million related to drilling exploratory wells and approximately $0.3 million
related to acquisition and reserve analysis costs, both of which were capitalized and are reflected in the balance of the oil and gas
property as of July 31, 2023. These amounts were offset by approximately $1.4 million in amounts used from the Advance to Operators account,
which is designated for costs for the HV-1 well.
For
the period from July 19, 2021 (inception) through October 31, 2021, we used $300,000 of cash in our investing activities, which was attributable
to cash paid for the acquisition of our unproved oil and gas properties.
Cash
Flows From Financing Activities
For
the nine months ended July 31, 2023 and 2022, cash provided by financing activities was $5,778,790 and $387,700, respectively. Cash provided
by financing activities during the nine months ended July 31, 2023 was primarily attributable to $6.4 million in gross proceeds from
the issuance of common stock and $1.8 million in net proceeds from the exercise of warrants, offset by the payment of offering costs
of approximately $1.0 million and the payment of notes payables of approximately $1.5 million. Cash provided by financing activities
during the nine months ended July 31, 2022 was primarily attributable to approximately $4.5 million in gross proceeds from the issuance
of notes payables to investors, offset by the repayment of notes payables of approximately $2.9 million and $1.1 million for the aggregate
payment of debt issuance costs and deferred offering costs.
The
Company’s cash change was approximately an increase of $1.4 million as of July 31, 2023. Management believes that the cash on hand
and working capital are sufficient to meet its current anticipated cash requirements for anticipated capital expenditures and operating
expenses for the next twelve months.
For
the year ended October 31, 2022, we received $496,915 from the issuance of debt and common stock.
For
the period from July 19, 2021 (inception) through October 31, 2021, we received $637,800 from the issuance of common stock.
Contractual
Obligations and Commitments
Note
Payable — Related Party
On
September 14, 2021, the Company entered into a related party note payable with Trio LLC as part of the agreement for the purchase of
an 82.75% working interest in the South Salinas Project, which was later increased to an 85.75% working interest. Per the Third Amendment
signed on May 27, 2022, a portion of a previous payment made to Trio LLC was used to fund a lease extension payment to a third-party;
as the payment previously made was to be used for other expenditures, the amount used to fund the lease extension was added to the remaining
amount due to Trio LLC, increasing it from $780,000 to $1,032,512. Per an extension signed during March 2023 to the Fourth Amendment,
the Company made a final payment of $1,032,512 upon the consummation of its IPO. As of July 31, 2023 and October 31, 2022, the balance
of the related party note payable was $0 and $1,025,497 (net of imputed interest of $7,015), respectively, with aggregate payments made
of $1,032,512 and $2,920,000, respectively, and interest expense recognized of $0 and $7,015 for the three and nine months ended July
31, 2023, respectively, and $15,215 and $80,136 during the three months and nine months ended July 31, 2022, respectively.
Fourth
Amendment to Purchase and Sale Agreement
On
December 22, 2022, the Company and Trio LLC entered into the Fourth Amendment to the Purchase and Sale Agreement (the “Fourth Amendment”).
The
terms of the Fourth Amendment provide for the following:
The
Company was granted a 120 day option (commencing on January 1, 2023, now expired) to acquire any or all of the following three assets
currently owned in part by Trio LLC (the “Optioned Assets”). The price for this option was $150,000 (the “Option Fee”),
which was paid by the Company to Trio LLC. The Optioned Assets are as follows:
| |
● |
The Hangman Hollow Field
(aka McCool Ranch Oil Field) asset with an option to acquire Trio LLC’s 44% working interest and their Operatorship; |
| |
● |
The Kern Front Field asset
with an option to acquire Trio LLC’s 22% working interest and their Operatorship; and |
| |
● |
The Union Avenue Field
with an option to acquire Trio LLC’s 18% working interest and their Operatorship; |
The
Optioned Assets are all located in California and are detailed in exhibits to the Fourth Amendment. In order evaluate the Optioned Assets,
the Company agreed to engage KLS Petroleum Consulting LLC (“KLSP”) to do a detailed analyses and estimations of the oil and
gas reserves and of the fair market values of each of these three assets, at a cost not to exceed $40,000. This analysis is ongoing.
The 120-day option period has now expired but the Company and Trio LLC are nevertheless continuing to work together cooperatively toward
the goal of facilitating the Company’s acquisition of the Optioned Assets.
On
May 12, 2023, the Company announced the signing of an Acquisition Agreement to potentially acquire up to 100% of the working interest
in the Union Avenue Field. However, the Company and Trio LLC did not agree on terms and the transaction did not close.
The
Company paid Trio LLC $60,529.40, which amount is one-half (1/2) of the amount paid by Trio LLC to acquire additional working interest
in the South Salinas Project, for which payment the Company assigned an additional 3.026471% working interest in the South Salinas Project,
which working interest amount is one-half (1/2) of the working interest that was acquired by Trio LLC. This assignment was completed.
The
Company agreed to start the process of pursuing and consummating additional lease acquisitions in the areas deemed by the parties to
be higher priority areas lying within and around the South Salinas Project Area. Such acquisitions shall be for an aggregate purchase
price not to exceed approximately $79,000.00. Some leases were acquired in February and March 2023, as described more-fully elsewhere
hereunder.
The
Company authorized Trio LLC to engage the services of a contractor to do road access work and dirt-moving work (estimated to cost approximately
$170,000.00) that was necessary before the commencement of drilling the HV-1 well.
The
Company agreed, retroactively commencing on May 1, 2022, to accrue a monthly consulting fee of $35,000.00, due and payable by the Company
to Trio LLC no later than two weeks following the closing date of Company’s IPO. This fee is intended to cover the work being done
for the Company by Trio LLC’s employees prior to the closing date of the Company’s IPO.
Unproved
Properties Leases
As
of July 31, 2023, the Company holds various leases related to the unproved properties of the South Salinas Project. Two of the leases
are held with the same lessor. The first lease covers 8,417 acres and is currently in “force majeure” status. On May 27,
2022, the Company entered into an Amendment to the lease agreement which provides for an extension of the current force majeure status
for an additional, uncontested twelve months, during which the Company will be released from having to evidence to the lessor the existence
of force majeure conditions. As consideration for the granting of the lease extension, the Company paid the lessor a one-time, non-refundable
payment of $252,512; this amount was capitalized and is reflected in the balance of the oil and gas property as of October 31, 2022.
The extension period commenced on June 19, 2022. As of July 31, 2023, the “force majeure” status was extinguished by the
drilling of the HV-1 well; the validity of the lease is maintained by the drilling of the well, which is in production testing.
The
second lease covers 160 acres of the South Salinas Project; it is currently held by delay rental and is renewed every three years. Until
drilling commences, the Company is required to make delay rental payments of $30/acre per year. The Company is currently in compliance
with this requirement and has paid in advance the delay rental payment for the period from October 2022 through October 2023.
During
February and March of 2023, the Company entered into additional leases related to the unproved properties of the SSP with two groups
of lessors. The first group of leases covers 360 acres and has a term of 20 years; the Company is required to make rental payments of
$25/acre per year. The Company is currently in compliance with this requirement and has paid in advance the rental payment for the period
February 2023 - February 2024. The second group of leases covers 307.75 acres and has a term of 20 years; the Company is required to
make rental payments of $30/acre per year. The Company is currently in compliance with this requirement and has paid in advance the rental
payment for the period from March 2023 through March 2024.
As
of July 31, 2023, the Company assessed the unproved properties of the South Salinas Project and those adjacent to it for impairment,
analyzing future drilling plans, leasehold expiration and the existence of any known dry holes in the area. Management concluded there
is no impairment allowance required as of July 31, 2023.
January
2022 Securities Purchase Agreement with Investors
On
January 28, 2022, the Company entered into a Securities Purchase Agreement (“January 2022 SPA”) with GenCap Fund I LLC (“GenCap”),
pursuant to which (i) in exchange for $4,500,000 in consideration, the Company issued senior secured convertible promissory notes (the
“January 2022 Notes”) with an aggregate principal amount of $4,500,000 (ii) the Company issued warrants to purchase up to
50% of the number of shares of Common Stock issued upon the full conversion of the January 2022 Notes, and (iii) conditional upon a successful
IPO, the Company agreed to issue commitment shares (“Commitment Shares”) to the investors (“GenCap Investors”)
upon the date of the Company’s IPO. The Notes were collateralized with a security interest in the oil and gas properties, which
was to be perfected by April 28, 2022. In the event the collateral was not perfected by April 28, 2022, the Company was required to deliver
4,500,000 shares (“Default Shares”) to the investors. The Default Shares were initially held in escrow until the earlier
of a) the granting and perfection of the security interest, b) the conversion of the January 2022 Notes upon the IPO or c) April 28,
2022. As the Company failed to perfect the security interest and no IPO occurred by April 28, 2022, the Default Shares were delivered
to the investors on April 28, 2022.
The
January 2022 Notes have a maturity date on the earlier of April 30, 2023 (such maturity date being extended initially from January 28,
2023 pursuant to the amendment to the January 2022 Notes signed on January 23, 2023 and again from February 28, 2023 pursuant to the
second amendment to the January 2022 Notes signed on February 23, 2023) or the IPO and bear interest at a rate of 8% per annum, which
is to be accrued and paid on the maturity date. Because the Company’s IPO did not occur by August 1, 2022 and the Company did not
default on the January 2022 Notes, the interest percentage increased to 15% per annum. The principal and interest payable on the January
2022 Notes will automatically convert into shares upon the IPO. The conversion price is the lesser of i) the IPO price multiplied by
the discount of 50% or ii) the opening price of the shares of Common Stock on the trading day following the date of the consummation
of the IPO multiplied by the discount of 50%. The number of conversion shares is the outstanding principal amount divided by the conversion
price. Upon the consummation of the IPO, the debt will convert into a fixed dollar amount of $9,000,000 of a variable number of shares.
Upon consummation of the IPO, the January 2022 Notes were converted into 5,038,902 shares of common stock.
The
Commitment Shares were issued upon the closing of the IPO. The number of Commitment Shares issued was 375,000, which was 25% of the aggregate
January 2022 Notes principal balance of $1,125,000 divided by the offering price of the IPO.
Pursuant
to the terms of the January 2022 SPA, the Company issued warrants to purchase Common Stock to the GenCap Investors (the “GenCap
Warrants”). The GenCap Warrants are exercisable into up to 50% of the number of shares of Common Stock issued upon full conversion
of the Notes, with an exercise price equal to the conversion price. Accordingly, upon the consummation of the IPO, warrant holders can
receive up to $4,500,000 worth of Common Stock in exchange for a cash payment of 50% of the IPO price, or up to $2,250,000. The shares
of Common Stock issuable upon exercise of the GenCap warrants were registered for resale on a registration statement on Form S-1 (File
No. 333-272638) which became effective on July 6, 2023.
On
July 10, 2023, the Company entered into warrant exercise agreements with five of the six GenCap investors, pursuant to which the holders
agreed to exercise the warrants, effective on July 10, 2023, to purchase 2,449,466 shares of Common Stock (which represented an increase
of 25% over the number of shares of common stock exercisable pursuant to such GenCap Warrants on such date, as agreed to by the Company
and the holders of the GenCap Warrants), and the Company agreed to reduce the exercise price of the Warrants from $1.03 to $0.80 per
share with respect to the exercise of the Warrants pursuant to such Warrant Exercise Agreements. The GenCap Warrants, held by the GenCap
Warrants holder who did not enter into a Warrant Exercise Agreement with the Company remained unchanged with respect to the number of
shares exercisable thereunder, the exercise price and all other terms. Accordingly, 2,449,466 GenCap Warrants (original number of warrants
was 1,959,573) were exercised at an exercise price of $0.80 per share for aggregate proceeds (net of equity issuance costs of $146,938)
of $1,812,635. On September 20, 2023, the Company and a GenCap Warrants holder, which was assigned to such holder in July 2022, entered
into an Amendment to Warrant and Agreement to Exercise Common Stock Purchase Warrant (the “Warrant Exercise & Amendment Agreement”)
pursuant to which the Company agreed to amend the GenCap Warrants held by such holder in order to (i) reduce the exercise price of the
GenCap Warrants from an exercise price of $1.03 per share to $0.11 per share and (ii) add a customary cashless exercise provision to
such GenCap Warrants providing the holder with the ability to exercise such warrant on a “cashless basis.” Under the terms
of the Warrant Exercise & Amendment Agreement, the holder of the GenCap Warrants was also required to exercise the GenCap Warrants,
in full, on or around September 20, 2023, either by paying $0.11 per share for the exercise of all 559,878 shares of common stock exercisable
under the GenCap Warrants in consideration for the payment of a total of $61,586 to the Company, or by exercising on a “cashless
basis” pursuant to the terms and conditions of the Common Warrant. On September 21, 2023, the holder delivered a notice of exercise
to the Company exercising the Common Warrant, in full, on a “cashless basis,” pursuant to which an aggregate of 451,831 shares
of common stock was issued to the holder on September 25, 2023.
In
addition, the Company agreed to enter into a registration rights agreement (the “GenCap RRA”) in conjunction with the SPA.
Pursuant to the GenCap RRA, the Company is obligated to register for resale at least the number of Common Stock equal to 125% of the
sum of the maximum number of shares of Common Stock issuable upon the exercise of the GenCap Warrants within 60 days following the consummation
of the Company’s IPO. In the event the Company does not effect the resale registration within the 60 day window, the Company will
owe certain liquidated damages to the holders of the GenCap Warrants, as more fully described in the GenCap RRA.
Subsequent
to the period ended July 31, 2023, on September 20, 2023, the Company and the sixth GenCap investor entered into an Amendment to Warrant
and Agreement to Exercise Common Stock Purchase Warrant, pursuant to which the Company agreed to amend the Warrant held by such holder
in order to (i) reduce the exercise price of the Warrant from an exercise price of $1.03per share to $0.11 per share and (ii) add a customary
cashless exercise provision to such Warrant providing the holder with the ability to exercise the Warrant on a “cashless basis.”
Under the terms of the Agreement, the holder of the Warrant was also required to exercise the Warrant, in full, on or around September
20,2023, either by paying $0.11 per share for the exercise of all 559,878 shares of common stock exercisable under the Warrant in consideration
for the payment of a total of $61,586 to the Company, or by exercising on a “cashless basis” pursuant to the terms and conditions
of the Warrant.
On
September 21, 2023, the holder delivered a notice of exercise to the Company exercising the Warrant, in full, on a “cashless basis,”
pursuant to which an aggregate of 451,831 shares of common stock were issued to the holder on or before September 25, 2023.
Bridge
Note
During
September 2022, the Company entered into an agreement or bridge note (“Bridge Note”) with three investors; the Bridge Note
includes original issue discount senior notes (“Notes”) with gross proceeds of $444,000, a 10% Original Issue Discount (“OID”)
of $44,000 and debt issuance costs of $70,438, for net proceeds of $329,562 to the Company. The Bridge Note included pre-funded warrants
that permit the investors to purchase a number of shares of the Company’s common stock (equal to 100% of the original principal
amount of the Notes), which can be exercised from the date of the warrant agreement to five years after the date of the consummation
of the Company’s IPO at an exercise price of $0.01. The Notes had a maturity date of the earlier of i) April 30, 2023 or ii) the
consummation of the IPO (see Note 10). The Notes bore interest at 8% per annum, which would waived if the Company completed a successful
IPO within 90 days of the closing of financing; in the event of default, the interest percentage would increase to 15% per annum.
The
Company also issued pre-funded warrants in connection with the Bridge Note to purchase a number of shares equal to the number of dollars
of the Notes, or 400,000, at an exercise price of $0.01 per share; the Company determined the warrants are equity classified and can
be exercised at any time from the date of the warrant agreement to five years from the date of the completion of the IPO (see Note 9).
The Company also incurred debt issuance costs of $70,438 in connection with the issuance of the Notes and warrants. The values of the
OID, warrants and debt issuance costs are recorded as debt discounts and amortized over the life of the Notes as interest expense.
Upon
consummation of its IPO, the Company repaid the Bridge Note in the amount of $440,000 and interest was waived by the investors. As of
July 31, 2023 and October 31, 2022, the balance of the Bridge Note (which is included within the Notes payable – investors, net
of discounts line item on the balance sheet) is $0 and $265,719, respectively, with interest expense of $0 and $174,281 for the three
and nine months ended July 31, 2023, respectively.
Board
of Directors Compensation
On
July 11, 2022, the Company’s Board of Directors approved compensation for each of the non-employee directors of the Company, which
became effective upon the consummation of our IPO. Such compensation is structured as follows: an annual retainer of $50,000 cash plus
an additional $10,000 for each Board committee upon which the director serves, each paid quarterly in arrears. As of July 31, 2023, the
Company has recognized $78,132 in directors’ fees.
Agreement
with Advisors
On
July 28, 2022, the Company entered into an agreement with Spartan Capital Securities, LLC (“Spartan”) whereby Spartan agreed
to serve as the exclusive agent, advisor or underwriter in any offering of securities of the Company for the term of the agreement, which
was one year. The agreement provided for a $25,000 non-refundable advance upon execution of the agreement and completion of a bridge
offering to be credited against the accountable expenses incurred by Spartan upon successful completion of the IPO, a cash fee or an
underwriter discount of 7.5% of the aggregate proceeds raised in our IPO, warrants to purchase a number of shares of common stock equal
to 5% of the aggregate number of shares of common stock placed in the IPO, an expense allowance of up to $150,000 for fees and expenses
of legal counsel and other out-of-pocket expenses and 1% of the gross proceeds of the IPO to Spartan for non-accountable expenses. The
agreement also provided for an option to Spartan that is exercisable within 45 days after the closing of the IPO to purchase up to an
additional 15% of the total number of securities offered by the Company in the IPO.
On
April 20, 2023, pursuant to the agreement with Spartan, the Company issued representative warrants to Spartan to purchase up to an aggregate
of 100,000 shares of common stock; these warrants may be exercised commencing from the closing of the offering on April 20, 2023, and
expiring five years from the effective date of the registration statement on April 17, 2028, at an exercise price of $3.30 (110% of the
public offering price of the common stock).
Trio
LLC - Monthly Consulting Fee
Pursuant
to the Fourth Amendment to the PSA, the Company agreed, commencing on May 1, 2022, to accrue a monthly consulting fee of $35,000, due
and payable by the Company to Trio LLC. This fee was intended to cover the work being done for the Company by Trio LLC’s employees
prior to the closing date of the Company’s IPO. As of July 31, 2023, the Company has accrued and paid $406,000 in fees for these
services. No further payments are due and the Company’s obligation to pay such consulting fee has been terminated.
On
May 1, 2023, the Company hired six of the Trio LLC employees providing services to the Company and entered into employment agreements
with each of them. These employment agreements provide for compensation and the award of an aggregate of 700,000 restricted shares pursuant
to the Company’s 2022 Equity Incentive Plan with a start date of May 1, 2023, provided that each individual continues to serve
as an employee of Trio LLC on a part-time basis. As of July 31, 2023, the Company has recorded stock-based compensation expense of $226,242
for these shares as of the end of the period.
Critical
Accounting Policies and Estimates
Basis
of Presentation
We
prepare our financial statements in conformity with GAAP, which requires management to make certain estimates and assumptions and apply
judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to
be important at the time the condensed financial statements are prepared, and actual results could differ from our estimates and such
differences could be material. Due to the need to make estimates about the effect of matters that are inherently uncertain, materially
different amounts could be reported under different conditions or using different assumptions. On a regular basis, we review our critical
accounting policies and how they are applied in the preparation of our condensed financial statements, as well as the sufficiency of
the disclosures pertaining to our accounting policies in the footnotes accompanying our financial statements. Described below are the
most significant policies we apply in preparing our condensed financial statements, some of which are subject to alternative treatments
under GAAP. We also describe the most significant estimates and assumptions we make in applying these policies. See “Note 2 - Summary
of Significant Accounting Policies” to our condensed financial statements.
Oil
and Gas Assets and Exploration Costs – Successful Efforts
The
Company is in the exploration stage and has not yet realized any revenues from its operations. It applies the successful efforts method
of accounting for crude oil and natural gas properties. Under this method, exploration costs such as exploratory geological and geophysical
costs, delay rentals and exploratory overhead are expensed as incurred. If an exploratory property provides evidence to justify potential
development of reserves, drilling costs associated with the property are initially capitalized, or suspended, pending a determination
as to whether a commercially sufficient quantity of proved reserves can be attributed to the area as a result of drilling. At the end
of each quarter, management reviews the status of all suspended exploratory property costs in light of ongoing exploration activities;
in particular, whether the Company is making sufficient progress in its ongoing exploration and appraisal efforts. If management determines
that future appraisal drilling or development activities are unlikely to occur, associated exploratory well costs are expensed.
Costs
to acquire mineral interests in crude oil and/or natural gas properties, drill and equip exploratory wells that find proved reserves
and drill and equip development wells are capitalized. Acquisition costs of unproved leaseholds are assessed for impairment during the
holding period and transferred to proven crude oil and/or natural gas properties to the extent associated with successful exploration
activities. Significant undeveloped leases are assessed individually for impairment, based on the Company’s current exploration
plans, and a valuation allowance is provided if impairment is indicated. Capitalized costs from successful exploration and development
activities associated with producing crude oil and/or natural gas leases, along with capitalized costs for support equipment and facilities,
are amortized to expense using the unit-of-production method based on proved crude oil and/or natural gas reserves on a field-by-field
basis, as estimated by qualified petroleum engineers.
Unproved
oil and natural gas properties
Unproved
oil and natural gas properties typically carry costs incurred to acquire unproved leases. Unproved lease acquisition costs are capitalized
until the lease expires or when the Company specifically identifies a lease that will revert to the lessor, at which time it charges
the associated unproved lease acquisition costs to exploration costs.
Unproved
oil and natural gas properties are assessed periodically for impairment on a property-by-property basis based on remaining lease terms,
drilling results or future plans to develop acreage.
Impairment
of Other Long-lived Assets
The
Company reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the
historical cost-carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of
the asset by estimating the future net undiscounted cash flows expected to result from the asset, including eventual disposition. If
the future net undiscounted cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference
between the asset’s carrying value and estimated fair value. With regards to oil and gas properties, this assessment applies to
proved properties; unproved properties are assessed for impairment either at an individual property basis or a group basis.
Asset
Retirement Obligations
Asset
retirement obligations consist of future plugging and abandonment expenses on oil and natural gas properties. In connection with the
South Salinas Project acquisition described above, the Company acquired the plugging and abandonment liabilities associated with six
temporarily shut-in, idle wells. The fair value of the ARO was recorded as a liability in the period in which the wells were acquired
with a corresponding increase in the carrying amount of oil and natural gas properties. The Company plans to utilize the six wellbores
acquired in the South Salinas Project acquisition in future production, development and/or exploration activities. The liability is accreted
for the change in its present value each period based on the expected dates that the wellbores will be required to be plugged and abandoned.
The capitalized cost of ARO is included in oil and gas properties and is a component of oil and gas property costs for purposes of impairment
and, if proved reserves are found, such capitalized costs will be depreciated using the units-of-production method. The asset and liability
are adjusted for changes resulting from revisions to the timing or the amount of the original estimate when deemed necessary. If the
liability is settled for an amount other than the recorded amount, a gain or loss is recognized.
Recent
Accounting Pronouncements
All
recently issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.
BUSINESS
Overview
We
are a California-focused oil and gas exploration and development company headquartered in Bakersfield, California, with operations in
Monterey County. The Company was incorporated on July 19, 2021, under the laws of Delaware to acquire, fund, and operate oil exploration
and production from assets in California. We have no revenue-generating operations as of the date of this prospectus. The Company was
formed to acquire an approximate 82.75% (which was subsequently increased to approximately an 85.75% working interest) working interest
in the large, approximately 9,300-acre South Salinas Project located in Monterey, California (the “South Salinas Project”),
and subsequently partner with certain members of Trio LLC’s management team to develop and operate those assets. Trio LLC holds
an approximate 3.8% working interest in the South Salinas Project. We hold an approximate 68.6% interest after the application of royalties
(“net revenue interest”) in the South Salinas Project. Although our focus currently is California, we may acquire assets
outside of California.
Trio
LLC is a licensed Operator in California and operates the South Salinas Project on behalf of us and of the other working interest partners.
Trio LLC operates the South Salinas Project pursuant to a Joint Operating Agreement dated February 1, 2004, by and among Trio Petroleum
Inc. (the predecessor corporation to Trio LLC), as Operator, and the other working interest parties. The parties to the JOA
are partial owners of the oil and gas leases and/or oil and gas interests in the South Salinas Project and the parties agreed to have
the Operator explore and develop these leases and/or interests for the production of oil and gas as provided therein. Trio LLC, as Operator,
generally conducts and has full control of the operations and acts in the capacity of an independent contractor. Trio LLC is obligated
to conduct its activities under the JOA as a reasonable prudent operator, in good workmanlike manner, with due diligence and dispatch,
in accordance with good oilfield practices, and in compliance with applicable laws and regulations.
Recent
Development
On
October 16, 2023, we entered into an Agreement for Purchase and Sale of an Undivided Interest (the “McCool Ranch Purchase Agreement”)
in the McCool Ranch Oil Field (the “McCool Ranch Oil Field”) with Trio LLC. Pursuant to the McCool Ranch Purchase Agreement,
effective October 1, 2023, we acquired an approximate 22% working interest undivided interest in and to certain oil and gas assets at
the McCool Ranch Oil Field, which is located in Monterey, County, California, just seven miles from our flagship South Salinas Project.
The acquired property is a relatively new oil field developed with six oil wells, one water-disposal well, steam generator, boiler, three
5,000 barrel tanks, 250 barrel test tank, water softener, two freshwater tanks, two soft water tanks, in-field steam pipelines, oil pipelines
and other facilities. The property is fully and properly permitted for oil and gas production, cyclic-steam injection and water disposal
and is currently idle. We are acquiring the working interests at the McCool Ranch Oil Field through work commitment expenditures that
will be allocated to restart production at the field and establish cash flow for us, with upside potential given the numerous undrilled
infill and development well locations. See “Business – Recent Developments” for further information on our acquisition
of working interests in the McCool Ranch Oil Field.
The
McCool Ranch Purchase Agreement provides for the payment of $100,000, upon execution (the “Stage 1 Purchase Price”). As soon
as practicable, Trio LLC will initiate refurbishment operations (“Refurbishment’) with respect to the San Ardo WD-1 water
disposal well (the “WD-1”) to determine if it is capable of reasonably serving the produced water needs for the Assets (as
such term is defined in the McCool Ranch Purchase Agreement), and if Refurbishment is successful, the Company shall pay an additional
$400,000 to Trio LLC (the “Stage 2 Purchase Price”), which shall be used by Trio LLC in restarting production operations.
If Refurbishment is not successful, measured by a failure of the WD-1 to be proved to be capable of reasonably serving the produced water
disposal needs for the field we may elect, in its our discretion, to either (i) terminate the McCool Ranch Purchase Agreement and receive
the Stage 1 Purchase Price back in full, or (ii) pay the Stage 2 Purchase Price, which shall be used by Trio LLC in further efforts to
establish suitable water disposal and/or in restarting production operations. In the event such Refurbishment is successful resulting
in a water disposal well that is capable of reasonably serving the produced water disposal needs for the field, then any funds remaining
of the Stage 2 Purchase Price shall be used by Trio LLC in restarting production operations. In the event the Stage 2 Purchase Price
is paid and received, all funds paid for the Refurbishment by Trio LLC out of its own account shall be reimbursed to it from the Stage
2 Purchase Price funds. Once oil production is realized from the restart of operations, the revenue stream from oil sales, after royalties
and over and above operating costs, collectively attributable to the Company and Trio LLC before payout of the Stage 1 Purchase and Stage
2 Purchase Price of $500,000.00 (the “Total Purchase Price”), shall be apportioned 80% to the Company and 20% to Trio LLC.
Upon payout to the Company of the Total Purchase Price, such revenue stream shall be apportioned 40% to the Company and 60% to Trio LLC
until Trio LLC has been reimbursed for $871,642.23 (“WI Indebtedness”). Trio LLC shall be reimbursed no more than the total
amount of the WI Indebtedness; however, regardless of the source of its reimbursement of same, upon payout of the WI Indebtedness, the
Company and Trio LLC will revert to their proportionate 50/50 working interest shares.
Competition
There
are many large, medium, and small-sized oil and gas companies and third-parties that are our competitors. Some of these competitors have
extensive operational histories, experienced oil and gas industry management, profitable operations, and significant reserves and funding
resources. Our efforts to acquire additional oil/gas properties in the State and elsewhere may be met with competition.
Government
Regulation
We
are subject to a number of federal, state, county and local laws, regulations and other requirements relating to oil and natural gas
operations. The laws and regulations that affect the oil and natural gas industry are under constant review for amendment or expansion.
Some of these laws, regulations and requirements result in challenges, delays and/or obstacles in obtaining permits, and some carry substantial
penalties for failure to comply. The regulatory burden on the oil and natural gas industry increases our cost of doing business, can
affect and even obstruct our operations and, consequently, can affect our profitability.
Various
permits for exploratory drilling and production-testing are in-hand for the South Salinas Project, whereas permits for long-term production,
conditional use permits, water disposal and other matters have not yet been obtained. There are challenges and uncertainties in obtaining
permits, which may result in delays and/or obstacles to developing our oil/gas assets. California and Colorado are two States that are
considered to have challenging regulatory environments and Monterey County in California also has this reputation. We may experience
delays and/or obstacles to exploiting our assets, and also may be required to make large expenditures to comply with governmental laws
and regulations and to obtain permits, particularly in respect of the following matters:
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permits
for drilling, long-term production, water disposal, conditional use and other matters |
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tax
increases, including retroactive claims |
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● |
unitization
of oil accumulations |
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● |
local
content requirements (including the mandatory use of local partners and vendors) |
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environmental
requirements and obligations, including remediation or investigation activities. |
Regulation
of Drilling and Production
The
drilling, completion and monitoring of wells and the production of oil and natural gas are subject to regulation under a wide range of
local, county, state and federal statutes, rules, orders and regulations. Federal, state, county and local statutes and regulations require
permits for drilling operations, drilling bonds and reports concerning operations. The trend in oil and natural gas regulation has been
to increase regulatory restrictions and limitations on such activities. Any changes in, or more stringent enforcement of, these laws
and regulations may result in delays or restrictions in permitting or development of projects or more stringent or costly construction,
drilling, water management or completion activities or waste handling, storage, transport, remediation, or disposal emission or discharge
requirements which could have a material adverse effect on the Company.
Currently,
all of our properties and operations are in California, which has regulations governing conservation matters, such as the California
Environmental Quality Act, such as protecting air and water quality, such as minimizing visual and noise impacts of operations, such
as regulating the disposal of produced water and more-specifically on regulating Underground Injection Control (“UIC”) water-disposal
projects, such as limitations on hydraulic-fracking and on acid-matrix stimulation, such as the unitization or pooling of oil and natural
gas properties, such as establishing maximum allowable rates of production from oil and natural gas wells, such as the regulation of
well spacing, such as requirements for the plugging and abandonment of wells, and other similar matters. Regulatory agencies that are
probably most-pertinent to the South Salinas Project include Monterey County, the California Geologic Energy Management Division of the
Department of Conservation (“CalGEM”), California Water Boards, and the US Environmental Protection Agency, although there
are many others. Negative effects of these regulations may include delaying or even blocking projects and increasing project costs. Trio
Petroleum has considerable expertise and experience in successfully navigating through California’s regulatory environment, which
will be utilized in Trio Petroleum’s efforts to successfully develop the South Salinas Project. Our competitors in the oil and
natural gas industry are subject to the same regulatory requirements and restrictions that affect our operations.
Regulation
of Transportation of Oil
Sales
of crude oil, condensate and natural gas liquids are not currently regulated and are made at negotiated prices; however, Congress could
reenact price controls in the future. Our sales of crude oil are affected by the availability, terms, and cost of transportation.
We
anticipate that oil produced from the South Salinas Project will initially be trucked to market, and that it may be trucked to market
over the long-term. Similarly, most if not all of the oil produced from the nearby San Ardo Oilfield (approximately cumulative 500 million
barrels of produced oil), which has been in operations for about 70 years, is trucked to market. Nevertheless, there are two idle oil
pipelines at the South Salinas Project that we may at some time in the future, but not initially, be able to utilize to move oil to market.
The
transportation of oil in common carrier pipelines is also subject to rate regulation. The Federal Energy Regulation Commission (“FERC”)
regulates interstate oil pipeline transportation rates under the Interstate Commerce Act. Intrastate oil pipeline transportation rates
are subject to regulation by state regulatory commissions. The basis for intrastate oil pipeline regulation, and the degree of regulatory
oversight and scrutiny given to intrastate oil pipeline rates, varies from state to state. Insofar as effective interstate and intrastate
rates are equally applicable to all comparable shippers, we believe that the regulation of oil transportation rates will not affect our
operations in any way that is of material difference from those of our competitors. Further, interstate, and intrastate common carrier
oil pipelines must provide service on a non-discriminatory basis. Under this open access standard, common carriers must offer service
to all shippers requesting service on the same terms and under the same rates. When oil pipelines operate at full capacity, access is
governed by pro-rationing provisions set forth in the pipelines’ published tariffs. Accordingly, we believe that access to oil
pipeline transportation services generally will be available to us to the same extent as to our competitors.
Regulation
of Transportation and Sale of Natural Gas
Historically,
the transportation and sale for resale of natural gas in interstate commerce have been regulated pursuant to the Natural Gas Act of 1938,
the Natural Gas Policy Act of 1978 and regulations issued under those Acts by the FERC. In the past, the federal government has regulated
the prices at which natural gas could be sold. While sales by producers of natural gas can currently be made at uncontrolled market prices,
Congress could reenact price controls in the future.
Since
1985, the FERC has endeavored to make natural gas transportation more accessible to natural gas buyers and sellers on an open and non-discriminatory
basis. The FERC has stated that open access policies are necessary to improve the competitive structure of the interstate natural gas
pipeline industry and to create a regulatory framework that will put natural gas sellers into more direct contractual relations with
natural gas buyers by, among other things, unbundling the sale of natural gas from the sale of transportation and storage services. Although
the FERC’s orders do not directly regulate natural gas producers, they are intended to foster increased competition within all
phases of the natural gas industry. We cannot accurately predict whether the FERC’s actions will achieve the goal of increasing
competition in markets in which our natural gas is sold. Therefore, we cannot provide any assurance that the less stringent regulatory
approach established by the FERC will continue. However, we do not believe that any action taken will affect us in a way that materially
differs from the way it affects other natural gas producers.
Intrastate
natural gas transportation is subject to regulation by state regulatory agencies. The basis for intrastate regulation of natural gas
transportation and the degree of regulatory oversight and scrutiny given to intrastate natural gas pipeline rates and services varies
from state to state. Insofar as such regulation within a particular state will generally affect all intrastate natural gas shippers within
the state on a comparable basis, we believe that the regulation of similarly situated intrastate natural gas transportation in any states
in which we operate and ship natural gas on an intrastate basis will not affect our operations in any way that is of material difference
from those of our competitors.
South
Salinas Project Oil Rights
We
have an approximate 85.75% working interest in the South Salinas Project, and a mineral-leasehold of approximately 9,300 gross mineral
acres in one largely contiguous land package. There are six existing idle wells and one active well (i.e., the HV-1 well) in the South
Salinas Project, and permits are approved by Monterey County for two additional wells (i.e., the HV-2 and HV-4 wells) at the project.
Description
of South Salinas Property and Current Operations
We
initiated operations with the acquisition from Trio LLC of 82.75% working interest in the South Salinas Project under the terms of a
Purchase and Sale Agreement (the “South Salinas Purchase Agreement”) dated September 14, 2021. Our working interest was later
increased by 3.026471% and we currently hold an approximate 85.75% working interest and an approximate 68.6% net revenue interest (after
all royalties) in the South Salinas Project. The working interest we own includes leases, wells, inventory and 3D seismic data.
Trio
LLC and its management team are part owners of the Company and will continue as Operator of the South Salinas Project on behalf of the
Company and of the other working interest partners.
There
are two contiguous areas of notable oil/gas accumulations in the South Salinas Project, being the Humpback Area (“Humpback Oil
Field”) that occurs in the northern part of the project, and the Presidents Area (“Presidents Oil Field”) that occurs
in the southern part of the project. Discovery wells have been drilled and completed at both Humpback Oil Field and Presidents Oil Field.
The HV-3A well is the first well drilled at the Presidents Oil Field and is its discovery well. About five wells have been drilled at
the Humpback Oil Field and of these we consider the BM 2-2 well as its discovery well.
We
believe the South Salinas Project has the potential to be significant, with an estimated 39.0 million barrels of oil (“MMBO”)
plus 40.0 billion cubic feet of gas (“BCFG”), or 45.7 million barrels of oil equivalent (“BOE”), in Probable
(P2) Undeveloped reserves and an approximate 92.4 MMBO plus 148.8 BCFG, or 117.2 million BOE, in Possible (P3) Undeveloped reserves.
Note that the conversion rate used is 6.0 Mcf per 1 BOE.
We
own approximately 30 square miles of three dimensional seismic data (“3D seismic”) at the project. An integrated interpretation
of the 3D seismic data and of well data indicates that Presidents Oil Field is a large anticlinal feature covering an area of approximately
1,300 acres, with a major structural, anticlinal high at the location of the HV-3A discovery well, and with two separate, four-way closed
anticlines at the northwest, down-plunge-end of the feature. The structural feature at Presidents Oil Field is best characterized as
a positive flower structure resulting from transpressional deformation along strike slip faults including the major Rinconada Fault.
One
of our objectives was to drill the HV-1 confirmation well at the President Oil Field immediately after the consummation of our IPO. This
objective has been accomplished. The HV-1 well spud on about May 5, 2023, and was completed at its total depth (“TD”) of
about 6,641feet (measured depth) on about May 15, 2023.
The
HV-1 well is located at Presidents Oil Field about two miles northwest of the HV-3A discovery well and for this reason it is considered
a “confirmation well” intended to help confirm the size of lateral extent of the field. The HV-1 surface hole location (“SHL”)
is located in about the center of T24S-R10E-Section 14. The well was directionally drilled approximately 2,600 feet toward the southeast
and its bottom hole location (“BHL”) is located in T24S-R10E-Section 13.
The
HV-1 confirmation well is located on the larger of the aforementioned two down-plunge, four-way closed anticlines. The down-plunge anticline
at the HV-1 well covers about 160 acres, or about 12% of Presidents Oil Field. Establishing commercial oil/gas production at the HV-1
well would help confirm that there are about 1,300 oil/gas productive acres at Presidents, whereas noncommercial oil/gas production at
the HV-1 well might reduce the potential productive area at Presidents by about 12% to about 1,140 acres.
There
were primarily three reservoir objectives in the HV-1 well, being the Yellow Zone (aka Yellow Chert), the underlying Brown Zone (aka
Brown Chert) and the underlying Mid-Monterey Clay, all of which are stratigraphic subunits of the Miocene-age Monterey Formation. The
Yellow and Brown zones are both attributed oil and gas reserves at Presidents in the Company’s reserve report as filed with the
SEC. The Mid-Monterey Clay is nowhere assigned reserves in the Company’s reserve report, although it did have significant oil/gas
shows in the HV-3A discovery well and periodically flowed oil and gas to surface at said well.
The
3D seismic data indicate that the Yellow and Brown zones have four-way closure (i.e., anticlinal rollover in one of the subsidiary, down-plunge
anticlines) at the location of the HV-1 well, whereas at this location the Mid-Monterey Clay may have fault closure (within the positive
flower structure) but lacks rollover. The directional drilling plan for the HV-1 well was designed such that the well would penetrate
the Yellow and Brown zones near the tops of their anticlinal closures and to continue downward into the Mid-Monterey Clay where anticlinal
closure apparently does not occur.
The
Yellow Zone, Brown Zone and Mid-Monterey Clay were encountered in the HV-1 well largely as predicted including with respect to depth,
thickness, lithology, wireline-log characteristics and oil and gas shows including free oil in cuttings and in the mud pit. The Company
believes that the HV-1 well has confirmed that there is a major oil and gas accumulation in the Presidents Oil Field, as the Company
announced in a press release on May 16, 2023.
Confirmation
of a major oil and gas accumulation by itself does not confirm whether economic oil/gas production can be established. The HV-1 well
is currently being production tested to evaluate commerciality. Production testing at the HV-1 well is currently being carried-out from
the bottom up (i.e., by testing the deepest zone first and working upward to shallower zones). Initial testing of the Mid-Monterey Clay,
which is the deepest zone penetrated in the HV-1 well, and of the overlying Brown Zone, has been carried-out. Testing of the Yellow Zone,
which overlies the Brown Zone, was expected to commence about one week prior to the date of this filing. Oil and gas were produced during
the testing of both the Mid-Monterey Clay and the Brown Zone but as of the date of this filing a determination has not yet been made
as to whether the HV-1 well is capable of commercial oil/gas production.
The
Mid-Monterey Clay is the deepest zone penetrated in the HV-1 well and initial testing of this interval was carried-out first, before
the testing of overlying zones. An interval of the Mid-Monterey Clay was perforated and acidized (for borehole cleanup) and it was then
tested via swabbing. “Swabbing” is a process that pulls liquids (e.g., oil, gas, water, drilling mud, acid used for borehole
cleanup, etc.) that are in a well to the surface (e.g., to storage tanks) by pulling up a cable with attached concave-up, rubber swab
cups. The liquids are then inspected at the surface to evaluate volumes, relative percentages of the various liquids and other parameters
such oil gravity, water salinity, etc. On average a swab run may be made every 10 or 15 minutes or so, recovering commonly about 4 to
6 barrels of fluid each run. The Mid-Monterey Clay was swabbed for about 11 days, during which time it commonly recovered liquids at
rates of about 300-500 barrels of fluid per day (“BFPD”), including on average about 2 to 3 barrels of oil per day (“BOPD”)
and some natural gas. Oil was recovered at rates up to about 125 BOPD when it was possible to lower the fluid level in the well. It has
not yet been determined whether the Mid-Monterey Clay is capable of commercial oil/gas production in the HV-1 well.
The
second interval that underwent initial testing in the HV-1 well is the Brown Zone (aka “Brown Chert”), which directly
overlies the Mid-Monterey Clay. Most of the Brown Zone was perforated and acidized (for borehole cleanup) and it was then tested via
swabbing for about 7 days, during which time it commonly recovered liquids at rates of about 400-700 BFPD, including on average
about 1 to 2 BOPD and some natural gas. Oil was recovered during swabbing at rates up to about 19 BOPD when it was possible to
minimally lower the fluid level in the well. The Brown Zone was then put on pump for about 8 days during which time it commonly
recovered liquids at rates of about 320 BFPD with minor amounts of oil and natural gas. An upper interval of the Brown Zone was then
put on pump for about 5 days during which time it commonly recovered liquids at rates of about 220 BFPD including oil at rates that
could not be accurately determined. It has not yet been determined whether the Brown Zone is capable of commercial oil/gas
production in the HV-1 well.
The
latest interval to undergo initial testing in the HV-1 well is the Yellow Zone (aka “Yellow Chert”), which overlies the Brown
Zone. An upper part of the Yellow Zone was perforated on October 20, 2023. Results from this testing will be disclosed when available.
After
the testing of the Yellow Zone is complete, the Company may determine to test an interval in the Upper-Monterey Clay that overlies the
Yellow Zone. Subsequently and/or otherwise, the Company expects to put one or more of the Mid-Monterey Clay, Brown Zone, Yellow Zone
and/or Upper-Monterey Clay intervals on pump for continued testing and/or oil/gas production.
The
Company remains optimistic that the HV-1 well will prove capable of commercial oil/gas production. However, as noted elsewhere above,
a determination has not yet been made as to whether the HV-1 well is capable of commercial oil/gas production.
The
primary oil and gas objectives in the South Salinas Project are classic fractured Monterey Formation reservoirs (i.e., zones with abundant
brittle/fractured intervals of chert, dolomite, limestone and porcelanite) and the Vaqueros Sand. Fractured Monterey Formation is one
of the most important and prolific oil/gas reservoirs in the State. The primary oil and gas reservoirs occur at approximately 4,000-8,000’
depth. The oil is mid- to high-gravity (18-40° API). The oil and gas targets are in structural traps - this is not a resource play.
The structural traps are imaged in 30 square miles of 3D seismic data that is owned by the Company. Importantly, the 3D seismic
was acquired after the drilling of all wells in the area except for our HV-3A and HV-1 wells. The 3D seismic provides critical information
about how prior wells were not properly located and, more importantly, how the South Salinas Project potentially may be successfully
exploited going forward.
The
Monterey Formation oil and gas zones have been tested as various wells at the South Salinas Project. The Vaqueros Sand has not yet been
tested but it is behind-pipe in the BM 2-2 well that the Company intends to perforate and test as soon as the necessary permits are in-hand.
We
have a leasehold of approximately 9,300 gross and 7,946 net mineral acres from one Lessor, Bradley Minerals. The surface lands at the
approximate 9,300 mineral acres are all part of the private Porter Ranch.
The
HV-1 well was drilled in May 2023, and is the newest well in the South Salinas Project. The HV-1 well, currently being tested, is considered
to be a new, net productive well, although it has not yet been deemed capable of commercial oil/gas production. The HV-1 well is the
only exploratory well and the only net productive well drilled in the last three fiscal years at the South Salinas Project. There has
been no dry development well drilled in the last three fiscal years at the South Salinas Project. Prior to the drilling of the HV-1 well,
the newest well at the Project was the HV-3A discovery well that was drilled in 2018.
All
of the Company’s acreage and reserves in the South Salinas Project are considered undeveloped. The new HV-1 well may be capable
of commercial oil and/or gas production but additional investments (e.g., installing production facilities), which investments the Company
may make starting in the fourth quarter of 2023, will be required and commercial oil/gas production established before acreage and reserves
associated with the well may potentially be moved out of the undeveloped category. Similarly, the HV-3A and BM 2-2 wells are and/or may
be capable of oil and/or gas production but additional investments at both of these wells are anticipated in Phase 1 prior to establishing
commercial oil/gas production and, therefore, the reserves and acreage at both of these wells are considered undeveloped. Thus, the total
gross undeveloped acreage is approximately 9,300 acres and the total net undeveloped acreage (i.e., net to the Company) is approximately
7,927 acres (i.e., 9,300 acres x 0.8575 = 7,927 acres). The total gross developed acreage is zero acres and the total net developed acreage
(i.e., net to the Company) is also zero acres.
As
noted elsewhere, on the Company’s leases there is one existing active well (i.e., the HV-1 well) and there are six existing idle
wells (i.e., the BM 1-2-RD1, BM 2-2, BM 2-6, HV-3A, HV 3-6 and HV 1-35 wells). Of these seven wells only the HV-1, HV-3A and BM 2-2 wells
are considered to probably and/or possibly be capable of economic oil/gas production, whereas it cannot be ruled-out that economic oil/gas
production could be established at the other four wells. Thus, on the Company’s leases there may be considered to be three (3)
gross productive wells (i.e., the HV-1, HV-3A and BM 2-2 wells) and 2.5725 net productive wells (i.e., 85.75% WI times 3 gross wells
= 2.5725 net productive wells).
The
Porter Ranch is an active working property that supports farming operations, livestock grazing, and the exploitation of oil and gas reserves,
as well as the preservation of open space that preserves natural habitat. There is partly overlapping ownership in Bradley Minerals (the
Lessor) and in Porter Ranch (the surface owner) and the interests and objectives of the two entities are closely aligned. In some projects
there are conflicts between surface and mineral owners, for example with the surface owner discouraging and the mineral owner encouraging
development. Importantly, in this project the mineral and surface owners have aligned interests/objectives, and this is highly beneficial
to the South Salinas Project. Total royalty burden at the South Salinas Project is 20%, all of which is held by lessors. Trio and its
associates hold no royalty interests in the South Salinas Project.
Infrastructure
at the South Salinas Project includes seven existing wells (including the recently drilled HV-1 well), six expansive well pads, and three
idle Exxon and/or AERA Energy oil and gas pipelines. The expansive well pads are important because they can accommodate significant project
development without additional disturbance of the surface – this should help expedite the approval of necessary additional permits.
South
Salinas Project Property and Future Operations
The
Company has drilling permits from Monterey County for two additional wells at the South Salinas Project, being the HV-2 well and the
HV-4 well. The Company may drill one or both of these wells in the fourth quarter of 2023 or first quarter of 2024. The Company is evaluating
whether to drill both of these wells at the Presidents Oil Field, or to drill one at the Presidents Oil Field and one at the Humpback
Oil Field. This determination will be made, in part, based on the results of the initial oil and gas production at the HV-1 well. If
production at the HV-1 well is good-to-excellent, then the Company may determine it appropriate to drill both the HV-2 and HV-4 wells
at the Presidents Oil Field.
The
Company anticipates that it may be desirable in the future to obtain access or ownership of the Exxon pipelines to move oil and gas to
markets and possibly to move produced water off-site. AERA Energy (“AERA”), which is Exxon-Mobil’s California subsidiary,
has significant operations a few miles north at the San Ardo Field. It is noted here that it has recently been reported that AERA’s
holdings in California have been and/or are being acquired by the companies IKAV, which is self-described as an international asset management
group headquartered in Germany, and CPP Investments, which is self-described as a professional investment management organization that
manages investments of contributors and beneficiaries of the Canada Pension Plan. There may be synergies between our project and AERA’s
and/or IKAV’s/CPP’s nearby operations that may include our use of one or more of the three pipelines.
There
is an application for an UIC water disposal operation at the South Salinas Project that is under review by CalGEM and being modified
and updated by Trio LLC. Approval of this water disposal project by CalGEM and Water Boards will be an important part of establishing
an economic oil and gas operations.
One
of the existing seven wells is active (i.e., the HV-1 well) and six are currently idle and are temporarily shut-in. When the appropriate
permits are in-hand, which may be in about 1 to 1.5 years, and when the required funding is in-place, the Company plans to return two
of the wells (the BM 2-2 and HV-3A wells) to oil and gas production, to reenter and sidetrack three of the wells (the HV 1-35, BM 2-6
and HV 3-6 wells) to optimal locations that are indicated in the 3D seismic data and to then put them on production, and to utilize one
well (the BM 1-2-RD1 well) as a water disposal well. The Company is currently testing the HV-1 well, as discussed at length above. The
Company may drill one or both of the HV-2 and HV-4 wells in the fourth quarter of 2023 or the first quarter of 2024. The HV-1, HV-2 and
HV-4 wells may each be produced for its own 18-month period, commencing on the date of completion, under the Company’s current
exploration/testing permits. The Company intends to work diligently with Monterey County, CalGEM and WaterBoards toward the goal of obtaining
permits in about 1 to 1.5 years for full field development, including long-term production and water disposal. This would facilitate
continued and uninterrupted oil and gas production at the HV-1, HV-2 and HV-4 wells, the recompletion and return to production of the
HV-3A and BM 2-2 wells, the utilization of the BM 1-2-RD1 well for water disposal, and the sidetracking of the HV 1-35, BM 2-6 and HV
3-6 wells to the oil and gas targets that are indicated in the 3D seismic data.
Evaluation
of Reserves and Net Revenue
Our
evaluation and review of oil and gas reserves and future net revenue attributable to the Company’s interests in the South Salinas
Project, as of the end of October 31, 2021, are based on independent analyses prepared by KLS Petroleum Consulting LLC (“KLSP”),
Denver, Colorado, as documented in the report that it prepared that is entitled “Reserves Attributable to Trio Petroleum Corp South
Salinas Area for Development Plan Phases 1 and 2” (the “Reserve Report”), and a parallel and related analysis by KLSP
for the entire Project that is entitled “S. Salinas Area, Full Development Reserves Supplement to SEC Report Dated 1-28-2022”
(the “Reserve Supplement Report”). KLSP is an independent, third-party, petroleum engineering firm that meets industry-standards
for qualifications, independence, objectivity and confidentiality. The primary technical person, Kenneth L. Schuessler, responsible for
preparing the Reserve Report is a registered professional petroleum engineer with decades of experience in the petroleum industry and
in analyses of reserves. Mr. Schuessler has significant experience in the petroleum industry and has held important positions with Bergeson
Associates, Malkewitz-Hueni Associates, SI International, System Technology Associates and MHA Petroleum Consultants. Importantly, Mr.
Schuessler has significant experience in the evaluation and exploitation of Monterey Formation fractured-reservoirs at the giant Elk
Hills and Coles Levee Fields in the San Joaquin Basin in California. Mr. Schuessler’s knowledge of the Monterey Formation is highly-relevant
to the evaluation of our South Salinas Project at which the fractured Monterey Formation is of critical importance.
KLSP
states that the reserves in the “Reserve Report” referenced as Exhibit 99.1 to the Registration Statement and the “Reserve
Supplement Report” referenced as Exhibit 99.2 to the Registration Statement and their determination are consistent with definitions
found in Rule 4-10 of SEC Regulation S-X (17CFR part 210), and Subpart 1200 of Regulation SK. The net reserves, costs and revenues are
those attributable to the Company. Future net revenue and discounted present value are on a before federal income tax (BFIT) basis.
KLSP
is an independent third-party that does not own an interest in any of our properties. KLSP is not a permanent employee of our company
but we may continue to employ its services on an as-needed basis.
Our
internal staff including our geoscience, drilling, facilities, regulatory, compliance, land, legal and accounting professionals communicated
as needed with KLSP to ensure the integrity, accuracy and timeliness of data furnished to KLSP, to review and discuss the properties,
methods and assumptions used by KLSP in KLSP’s preparation of the reserve estimates, and to review and discuss KLSP’s conclusions.
As discussed immediately above, KLSP is a highly-qualified, independent, petroleum-engineering consulting firm. Mr. Terence B. Eschner,
the Company’s acting President and a registered professional geologist, who is very knowledgeable about the South Salinas Project,
was the Company’s primary contact with KLSP regarding the reserve analyses that were conducted by KLSP. Mr. T. Eschner played a
key role providing the Company’s internal controls on the reserve estimation effort that was carried-out by KLSP, while not interfering
with KLSP’s analyses so as to ensure that KLSP’s analyses would truly be that of an independent third-party. The Company
recognizes that estimating volumes of economically recoverable oil and natural gas reserves is somewhat subjective and that the accuracy
of any reserve estimate is partly a function of the quality and accuracy of the available data and interpretations: for this reason and
others the Company strove to provide the best available data and interpretations to KLSP. Reserve estimates typically require revision
as new information becomes available and/or due to change in conditions and/or due to unforeseen circumstances. Reserve estimates commonly
differ from the quantities of oil and natural gas that are ultimately recovered. Estimates of economically recoverable oil and natural
gas and of future net revenues are based on a number of variables and assumptions, some or all of which may prove to be incorrect.
The
technologies utilized by KLSP in their reserve estimation efforts are discussed in detail in the Reserve Report. These technologies included
the evaluation and incorporation of data from analog oilfields. Analogs are widely used in reserves estimating, particularly in the early
development stages when direct measurement information (production history) is limited. As described in the Society of Petroleum Engineers’
Petroleum Resource Management System (PRMS Section 4.1.1) “The methodology is based on the assumption that the analogous reservoir
is comparable to the subject reservoir in regard to reservoir description, fluid properties, and most likely recovery mechanism(s) applied
to the project that control the ultimate recovery of petroleum. By selecting appropriate analogs, where performance data of comparable
development plans are available, a similar production profile may be forecast. Analogs are frequently applied in aiding in the assessment
of economic producibility, production decline characteristics, drainage area, and recovery factor.” The technologies utilized
by KLSP also included constructing several numerical models that evaluated the expected oil and gas production under an appropriate range
of reservoir characteristics, and which allowed probabilistic estimates of reserves. These models required reservoir properties and,
therefore, OOIP as input. The Probabilistic method defined a distribution representing the full range of possible values for input parameters.
This included dependencies between parameters that are also defined and applied. These distributions were randomly sampled using Monte
Carlo simulation to compute a full distribution of potential in-place and recoverable quantities of oil, gas, and water. Input distributions
were included for porosity, permeability, water saturation and net productive thickness. In addition, pore volume compressibility was
described with a distribution because its range of uncertainty can impact reservoir pressure and therefore future productivity. IHS’
Harmony Enterprise software was used to construct the numerical models for the various reservoir units, being Monterey Yellow, Monterey
Blue and Vaqueros Sand reservoir units. A ‘type well’ or calibration model was constructed for each reservoir using the average
conditions and reservoir properties cited above. In addition, using the probabilistic distributions of porosity, net thickness, water
saturation, permeability and pore volume compressibility, the reservoir model was run 500 times, each time the model selecting via Monte
Carlo sampling the input parameters according to the ranges and distributions defined. Each simulation run resulted in a particular value
of oil and gas recovery. The cumulative probabilities of the resulting forecasts of ultimate oil and gas recovery were used to identify
the reported reserve values.
We
have consulted with KLSP, and concluded that it is unnecessary at this time to update the provided estimates of net reserves and/or cash
flows, which are dated October 31, 2021, to the fiscal year-end of October 31, 2022, primarily because there are no new technical and/or
new well data that need to be integrated into the aforementioned estimates. Oil and gas prices have increased notably since October 2021
and, whilst material and operating costs have also risen, we believe that these factors will positively impact (i.e., favorably impact
the Company’s estimated reserves and cash flows) and/or not significantly impact the aforementioned estimates.
Disclosure
of Reserve Volumes and Reserve Values as of the End of October 31, 2021
KLSP
in the aforementioned reserve analyses recognizes the occurrence at the South Salinas Project of both Probable (P2) Undeveloped reserves
and of Possible (P3) Undeveloped reserves (see: “Glossary of Terms Used to Characterize Reserves & Projects” in Table
22 in the Reserve Report). SEC criteria stipulate that reserves cannot be classified as P1 Proved (i.e., PDP or Proved Developed Producing,
PDNP or Proved Developed Not Producing, PUD or Proved Undeveloped) if said reserves are not fully permitted for long-term production.
Permits for full field development and long-term production have not yet been sought by the Company and thus are not yet issued for the
South Salinas Project and, therefore, KLSP does not recognize Proved reserves at the South Salinas Project.
KLSP
provided estimates of net oil and gas reserves and future net revenues, attributable to the Company, for Phase 1, Phase 2 and for the
entire South Salinas Project, as shown in the below Table. Future net revenue and discounted present value are on a before federal income
tax (BFIT) basis. Both undiscounted and discounted net cash flow to the Company are shown. The discounted dollar amounts shown in the
below Table are discounted at 10% and, therefore, are net present value (“NPV”) 10 amounts, whereas KLSP also provided estimated
NPV5, 15, 20, 25, 30, 35, 45, 55, 65 and 75. Reserve volumes are expressed in stock tank barrels of oil and thousands of standard cubic
feet of gas (MCF).
There
are uncertainties in reserve forecasts and in associated estimates of future cash flows due to uncertainties in various matters that
are elaborated above (see: We face substantial uncertainties in estimating the characteristics of our prospects, so you should not place
undue reliance on any of our measures.). The Company’s estimates of Probable (P2) Undeveloped reserves, Possible (P3) Undeveloped
reserves and their respective estimated future cash flows are discussed more-fully above (see Evaluation of Reserves and Net Revenue)
and are described in detail in the Reserve Report. The Company’s reserve estimates are based on field analogs, numerical models
and probabilistic modeling. Copied below are two paragraphs from the Full Development Reserve Report that further explain the Company’s
estimated reserves:
“Because
decline curve analysis could not be used to forecast reserves, and since the development of type curves was problematic due to the early
historical time frame in which the analog fields were developed, probabilistic methods were employed. The interpretations of open hole
logs, core, and test information were used to describe ranges and distributions of key reservoir parameters. These were then input to
numerical simulation models that used Monte Carlo sampling and hundreds of runs to derive forecasts of production and ultimate recovery
representing P90 (1P), P50 (2P) and P10 (3P) reserve estimates. As indicated in the nomenclature of TABLE 22, these estimates are also
known as Proved, Proved+Probable, and Proved+Probable+Possible, respectively. The designation ‘P50’ means there is a 50 percent
probability that the actual production will exceed the value reported as the P50 reserves. The P50 value, also considered the Best or
Most Likely estimate, is derived from a cumulative frequency distribution of forecast reserves from the Monte Carlo simulations. If Proved
reserves have been assigned, Probable reserves are then represented by the difference between the P50 and P90 probabilistic estimates.
However, as explained below, Proved reserves have not been assigned in this report because project approval has not been secured by all
necessary government entities. Therefore, since there are no Proved or P90 volumes, the Probable reserves disclosed herein, derived from
the P50 probabilistic forecasts, are incremental volumes and presented as Probable (P2) reserves. The P10 reserve estimate has a 10 percent
probability of exceeding the estimated recovery and is also known as the High estimate. Possible reserves are represented by the difference
between the P10 and P50 estimates. Possible reserves are typically larger than Probable reserves. This is the result of the key reservoir
parameter distributions reflecting their variation in nature, and when the most favorable parameters are sampled together the resulting
calculation provides the highest, but least likely, values of estimated recoveries.”
“Probable
reserves are assigned in certain areas where, as described above, reserves could be considered Proved if all regulatory approvals and
permits were in place. Probable reserves are also assigned in areas where well control and interpretations of available data provide
sufficient geologic evidence of reservoir continuity at structural positions above lowest known hydrocarbons (LKH), and where engineering
evidence indicates the reservoir will have the requisite porosity, permeability and oil saturation to produce commercial quantities of
oil and gas. The assignment of Possible reserves does not incorporate a larger reservoir area, but rather Possible reserves are assigned
to the same wells having Probable reserves because the probabilistic methods employed indicate there may be a greater percentage recovery
of hydrocarbons than is appropriate for the ‘Most Likely’ reserve estimates.”
The
estimates of Probable (P2) Undeveloped reserves and Possible (P3) Undeveloped reserves and their respective estimated future cash flows
have different risk and/or uncertainty profiles and should not be summed arithmetically with each other. For example, estimates of permeability,
oil saturation, reservoir thickness and estimated ultimate recovery (EUR) are higher for the P3 reserve estimates than for the P2 reserve
estimates (see for example Figure 25 and Table 2 in the Reserve Report).
The
Probable (P2) and Possible (P3) reserves in the below Table are considered to be undeveloped as of the end of October 31, 2021. The HV-3A
and BM 2-2 wells are capable of oil and/or gas production but additional investments at both of these wells are anticipated in Phase
1 prior to establishing commercial oil/gas production and, therefore, the reserves at both of these wells are considered undeveloped.
The
effective date of the data in the below Table is as of the end of October 31, 2021. The date (i.e., as of the end of October 31, 2021)
is noted because the reserve estimates are date-specific, and might be, will likely be, revised at later dates. For example, if the Company’s
working-interest in the South Salinas Project, and/or the size of the Company’s leasehold position at the South Salinas Project,
were in the future to increase or decrease, then the reserve estimates would increase or decrease accordingly (note: the Company’s
%WI and leasehold position may increase but are not expected to decrease). Similarly, changes in the future of estimates of oil and/or
gas that can be economically recovered, in the market values of oil and/or gas, in estimates of reservoir properties such as thickness,
oil saturation, porosity, etc., and various other possible changes in the future, would accordingly result in revised reserve estimates
and/or revised estimates of net cash flow. No significant discovery or other favorable or adverse event has occurred since the end of
October 31, 2021, that would cause a substantial change in estimated reserves and/or cash flow, as of that date, other than the recent
(i.e., March 2022) significant increase in oil price stemming, in part, from Russia’s war on Ukraine, which oil price increase
is not incorporated into the analysis provided here.
Phase
1 is a development project with expenditures that are appropriately scaled to the capital raise that the Company anticipates may be realized
in the near term now that the Company has completed its IPO. Phase 2, upon demonstration of success in Phase 1, is a development project
with expenditures that are appropriately scaled to an anticipated secondary capital raise.
Phase
1 assumes that existing exploration permits will be utilized to drill three new wells (HV-1, HV-2 and HV-4 wells), which drilling was
completed for the HV-1 well in May 2023, and may commence for HV-2 and/or HV-4 in the first quarter of 2024, and that four additional
wells (HV-3A, BM 2-2, HV 1-35, BM 3-6 wells) will be either recompleted or sidetracked/redrilled in 2023 or 2024 upon securing necessary
permits. The Company’s estimated total Phase 1 investment is $18.6 million and provides for work to secure regulatory permits and
to drill/sidetrack and/or recomplete the aforementioned seven (7) wells. The Phase 1 analysis includes capital to plug and abandon the
wells, including surface-location cleanup and restoration as per CalGEM guidelines and regulations.
Phase
2 is assumed to begin in the third quarter of 2024, and employs $37.7 million to establish 12 additional oil and gas wells (i.e., sidetracking/redrilling
the HV 2-6 well and drilling 11 new wells) and install necessary associated infrastructure. The Phase 2 analysis includes capital to
plug and abandon the wells, including-surface location cleanup and restoration as per CalGEM guidelines and regulations.
Phase
1 is estimated to comprise an approximate 2.0 MMBO plus 2.0 BCFG, or 2.3 million BOE, in Probable (P2) Undeveloped reserves and an approximate
3.7 MMBO plus 6.7 BCFG, or 4.9 million BOE, in Possible (P3) Undeveloped reserves, as shown in part “A” of the below Table.
The Phase 1 estimated net cash flow to the Company, discounted at 10%, is $28 million for the Probable (P2) Undeveloped reserves and
$109 million for the Possible (P3) Undeveloped reserves, as shown in part “A” of the below Table. Note that the conversion
rate used in the below Table is 6.0 Mcf per 1 BOE.
Phase
2 is estimated to comprise an approximate 3.1 MMBO plus 3.2 BCFG, or 3.7 million BOE, in Probable (P2) Undeveloped reserves and an approximate
7.3 MMBO plus 11.6 BCFG, or 9.2 million BOE, in Possible (P3) Undeveloped reserves, as shown in part “B” of the below Table.
The Phase 2 estimated net cash flow to the Company, discounted at 10%, is $34 million for the Probable (P2) Undeveloped reserves and
$175 million for the Possible (P3) Undeveloped reserves, as shown in part “B” of the below Table.
The
Probable (P2) Undeveloped reserves in Phases 1 and 2 combined comprise an approximate 5.1 MMBO plus 5.2 BCFG, or 6 million BOE, as shown
in part “C” of the below Table. The estimated net cash flow to the Company, discounted at 10%, is $62.2 million for the Probable
(P2) Undeveloped reserves in the combined Phases 1 and 2, as shown in part “C” of the below Table.
The
Possible (P3) Undeveloped reserves in Phases 1 and 2 combined comprise an approximate 11 MMBO plus 18.3 BCFG, or 14.1 million BOE, as
shown in part “D” of the below Table. The estimated net cash flow to the Company, discounted at 10%, is $283.5 million for
the Possible (P3) Undeveloped reserves in the combined Phases 1 and 2, as shown in part “D” of the below Table.
Full
field development of the entire Project, as documented in the Reserve Supplement Report, incorporates the SEC Report Phase 1 Development
Project (i.e., Phase 1 in the Reserve Report) and deploys a subsequent drilling schedule (i.e., an expanded “Phase 2”) that
reflects full field development and that captures the reserve and value proposition that may be achieved with a capital commitment that
could result from a successful Phase 1. As described in the Reserve Report, Phase 1 uses existing exploration permits to drill three
wells beginning in May 2022. Four additional wells will be drilled upon securing a Development Permit from Monterey County in October
2023. Trio’s total Phase 1 investment is $18.6 million and provides for work to secure regulatory permits and drill or recomplete
seven (7) wells. Full field development (i.e., the expanded Phase 2 in the Reserve Supplement Report) begins July 2024 and employs $463.2
million to drill 144 wells by the end of 2027 and install associated infrastructure. The number of wells reflects full leasehold development
of the targeted Monterey productive intervals and areas using vertical wells on 80-acre spacing. The prospective Vaqueros Sand is developed
using horizontal wells on 160-acre spacing.
Full
field development of the entire Project is estimated to comprise an approximate 39.0 MMBO plus 40.0 BCFG, or 45.7 million BOE, in Probable
(P2) Undeveloped reserves and an approximate 92.4 MMBO plus 148.8 BCFG, or 117.2 million BOE, in Possible (P3) Undeveloped reserves,
as shown in part “E” of the below Table. The entire Project estimated net cash flow to the Company, discounted at 10%, is
$407.6 million for the Probable (P2) Undeveloped reserves and $2 billion for the Possible (P3) Undeveloped reserves, as shown in part
“E” of the below Table.
Table
1: Estimated Undeveloped Reserves and Cash Flow
| |
ESTIMATED
UNDEVELOPED RESERVES AND CASH FLOW |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| A. |
Phase
1 Undeveloped Reserve Categories |
|
Net
Trio Undeveloped Oil Reserves (Stock Tank Barrels) |
|
|
Net
Trio Undeveloped Gas Reserves (1000 CF, or MCF) |
|
|
Net
Trio Undeveloped Reserves (Barrel of Oil Equivalent) |
|
|
Trio
Undiscounted Net Cash Flow ($) |
|
|
Trio
Net Cash Flow Discounted at 10% ($) |
|
| |
Probable
(P2) Undeveloped of Limited Phase 1 |
|
|
1,975,000.0 |
|
|
|
2,022,900.0 |
|
|
|
2,312,150.0 |
|
|
$ |
95,573,000.00 |
|
|
$ |
28,194,000.00 |
|
| |
Possible
(P3) Undeveloped of Limited Phase 1 |
|
|
3,742,000.0 |
|
|
|
6,732,400.0 |
|
|
|
4,864,066.7 |
|
|
$ |
262,325,000.00 |
|
|
$ |
108,855,000.00 |
|
| B. |
Phase
2 Undeveloped Reserve Categories |
|
Net
Trio Oil Reserves (Stock Tank Barrels) |
|
|
Net
Trio Gas Reserves (1000 CF, or MCF) |
|
|
Net
Trio Reserves (Barrel of Oil Equivalent) |
|
|
Trio
Undiscounted Net Cash Flow ($) |
|
|
Trio
Net Cash Flow Discounted at 10% ($) |
|
| |
Probable
(P2) Undeveloped of Limited Phase 2 |
|
|
3,123,900.0 |
|
|
|
3,206,800.0 |
|
|
|
3,658,366.7 |
|
|
$ |
145,127,000.00 |
|
|
$ |
34,001,000.00 |
|
| |
Possible
(P3) Undeveloped of Limited Phase 2 |
|
|
7,258,300.0 |
|
|
|
11,603,200.0 |
|
|
|
9,192,166.7 |
|
|
$ |
499,464,000.00 |
|
|
$ |
174,621,000.00 |
|
| C. |
Undeveloped
Reserve Category by Development Plan Phase, for Limited Phases 1 & 2 |
|
Net
Trio Oil Reserves (Stock Tank Barrels) |
|
|
Net
Trio Gas Reserves (1000 CF, or MCF) |
|
|
Net
Trio Reserves (Barrel of Oil Equivalent) |
|
|
Trio
Undiscounted Net Cash Flow ($) |
|
|
Trio
Net Cash Flow Discounted at 10% ($) |
|
| |
Probable
(P2) Undeveloped of Limited Phase 1 |
|
|
1,975,000.0 |
|
|
|
2,022,900.0 |
|
|
|
2,312,150.00 |
|
|
$ |
95,573,000.00 |
|
|
$ |
28,194,000.00 |
|
| |
Probable
(P2) Undeveloped of Limited Phase 2 |
|
|
3,123,900.0 |
|
|
|
3,206,800.0 |
|
|
|
3,658,366.67 |
|
|
$ |
145,127,000.00 |
|
|
$ |
34,001,000.00 |
|
| |
Total
Probable (P2) Undeveloped of Limited Phases 1 & 2 |
|
|
5,098,900.0 |
|
|
|
5,229,700.0 |
|
|
|
5,970,516.67 |
|
|
$ |
240,700,000.00 |
|
|
$ |
62,195,000.00 |
|
| D. |
Undeveloped
Reserve Category by Development Plan Phase, for Limited Phases 1 & 2 |
|
Net
Trio Oil Reserves (Stock Tank Barrels) |
|
|
Net
Trio Gas Reserves (1000 CF, or MCF) |
|
|
Net
Trio Reserves (Barrel of Oil Equivalent) |
|
|
Trio
Undiscounted Net Cash Flow ($) |
|
|
Trio
Net Cash Flow Discounted at 10% ($) |
|
| |
Possible
(P3) Undeveloped of Limited Phase 1 |
|
|
3,742,000.0 |
|
|
|
6,732,400.0 |
|
|
|
4,864,066.67 |
|
|
$ |
262,325,000.00 |
|
|
$ |
108,855,000.00 |
|
| |
Possible
(P3) Undeveloped of Limited Phase 2 |
|
|
7,258,300.0 |
|
|
|
11,603,200.0 |
|
|
|
9,192,166.67 |
|
|
$ |
499,464,000.00 |
|
|
$ |
174,621,000.00 |
|
| |
Total
Possible (P3) Undeveloped of Limited Phases 1 & 2 |
|
|
11,000,300.0 |
|
|
|
18,335,600.0 |
|
|
|
14,056,233.33 |
|
|
$ |
761,789,000.00 |
|
|
$ |
283,476,000.00 |
|
| E. |
Undeveloped
Reserve Category for Entire Project, Full Field Development |
|
Net
Trio Oil Reserves (Stock Tank Barrels) |
|
|
Net
Trio Gas Reserves (1000 CF, or MCF) |
|
|
Net
Trio Reserves (Barrel of Oil Equivalent) |
|
|
Trio
Undiscounted Net Cash Flow ($) |
|
|
Trio
Net Cash Flow Discounted at 10% ($) |
|
| |
Total
Probable (P2) Undeveloped: Entire Project, Full Field Development |
|
|
38,996,000.0 |
|
|
|
39,963,900.0 |
|
|
|
45,656,650.00 |
|
|
$ |
1,844,194,000.00 |
|
|
$ |
407,595,000.00 |
|
| |
Possible
(P3) Undeveloped: Entire Project, Full Field Development |
|
|
92,376,000.0 |
|
|
|
148,778,400.0 |
|
|
|
117,172,400.00 |
|
|
$ |
6,356,981,000.00 |
|
|
$ |
1,998,235,000.00 |
|
Reasonable
Expectations of Reserve Analyses
This
prospectus provides a summary of risks and detailed discussions of risks relating to our business and risks related to this offering.
The Company recognizes these risks as being real and substantial. Nevertheless, the Company has reasonable expectations that the Company’s
South Salinas Project will prove to have reserves approximately as estimated, that the Company will have adequate funding to develop
the reserves, and that there will exist the legal right to develop the Company’s reserves in the South Salinas Project,
including the rights to full-field development, to long-term production and to deliver natural gas to market via pipeline, recognizing
as discussed elsewhere hereunder that there may be project delays and/or obstacles related to obtaining necessary permits from regulatory
agencies. Furthermore and more specifically, the Company has a reasonable expectation that the primary governmental regulatory agencies
that are currently and/or that will be involved in the permitting processes, which agencies will primarily be CalGEM, State Water Boards
and Monterey County, will determine to approve the Company’s applications for permits for various reasons that are discussed below.
See “Risks Relating to Our Business - We may face delays and/or obstacles in project development due to difficulties
in obtaining necessary permits from federal, state, county and/or local agencies, which may materially affect our business;” “Risks
Relating to Our Business - We face substantial uncertainties in estimating the characteristics of our prospects, so you should not place
undue reliance on any of our measures;” “Risks Relating to Our Business - The drilling of wells is speculative, often involving
significant costs that may be more than our estimates, and drilling may not result in any discoveries or additions to our future production
or future reserves; “Risks Relating to Our Business - Any material inaccuracies in drilling costs, estimates or underlying assumptions
will materially affect our business;” “Risks Relating to Our Business - Seismic studies do not guarantee that oil or gas
is present or, if present, will produce in economic quantities; and “Risks Relating to Our Business - We are subject to numerous
risks inherent to the exploration and production of oil and natural gas.”
The
Company during Phase 1 or shortly thereafter expects to prepare a full-field development plan to include the following key elements:
| |
● |
Documentation
of oil and gas reserves at the Project, including whatever results of the Phase 1 development program are both available and pertinent; |
| |
● |
Documentation
of the proposed wells and facilities that would be necessary to underpin full-field development and long-term production; |
| |
● |
Details
as to how the Company would minimize surface footprint by directionally drilling from existing well pads and similarly largely using
existing pads for facilities, which well pads at that time may include the currently existing six well pads plus the two wells pads
that are planned for construction at the HV-2 and HV-4 well sites. Use of these eight well pads for additional wells and facilities
will minimize the need for additional surface disturbance in the full-field development plan. The Company’s proposal to use
existing well pads to minimize surface footprint should help expedite approval of necessary permits; |
| |
● |
Details
as to how the Company would endeavor to minimize surface disturbances associated with pipeline construction by utilizing the existing
Exxon/AERA gas pipeline and one or more of the two existing Exxon/AERA oil pipelines. The Company’s proposal to use existing
pipelines to minimize surface disturbance should help expedite approval of necessary permits; |
| |
● |
Documentation
as to how the Company proposes to minimize or eliminate the trucking of oil by utilizing one or more of the two existing Exxon/AERA
oil pipelines. The Company’s proposal to use existing pipelines to minimize truck traffic should help expedite approval of
necessary permits; |
| |
● |
Documentation
as to how the Company’s operations will be carried-out in an environmentally and socially responsible manner; and |
| |
● |
A
Full Environment Impact Report, discussed immediately below. |
The
Company during Phase 1 or shortly thereafter expects to engage a third-party expert consulting company (“Environmental Consultant”)
to prepare a Full Environmental Impact Report (Full EIR) on the Company’s full-field development plan. It is customary in Monterey
County in these matters for the Environmental Consultant to be chosen by and/or agreed to by the County, for the Environmental Consultant
to report directly to the County’s technical staff, and to avoid any real or perceived conflicts of interest for County to directly
compensate the Environmental Consultant from funds paid to County by the Operator. The Company has a reasonable expectation that the
Full EIR will determine that the full-development project will have “a less than significant environmental impact” with a
“mitigated negative declaration”, meaning that the Project will be deemed environmentally acceptable with specific, delineated
mitigation-measures being taken to protect and prevent, as far as possible, damage to life, health, property, natural resources, climate
and other similar matters (e.g., water and air quality, scenic views or “viewshed”, etc.). The Company has a reasonable expectation
that it will be able to obtain a Full EIR with a mitigated negative declaration for the full-field development project that should help
expedite approval of necessary permits.
The
surface lands at the Project are privately owned by the Porter Ranch and the subsurface mineral rights are privately owned by Lessor
Bradley Minerals Company. The Porter Ranch is a multi-use working-ranch with operations that include the Company’s oil and gas
operations as well as extensive agricultural and livestock operations. The Porter Ranch (surface owners) and the Bradley Minerals Company
(mineral owners) are fully-aligned in their desire to develop the oil and gas resources at the Project. The Company has a reasonable
expectation that the surface and mineral owners will be fully-aligned and fully-supportive of the Company’s full-field development
plan and that this undivided support should help expedite approval of necessary permits.
CalGEM
has statutory mandates to ensure both energy production and environmental protection. The Company has a reasonable expectation that CalGEM
will have a favorable view of the Company’s full-development plan for the South Salinas Project and that CalGEM accordingly will
determine that the Company’s applications for necessary permits should be approved. The Company furthermore has a reasonable expectation
that State Water Boards will, similarly to CalGEM, have a favorable view of the Company’s full-development plan for the South Salinas
Project and that Water Boards accordingly will determine that the Company’s applications for necessary permits should be approved.
The
Company has a reasonable expectation that the County Commissioners and more importantly the County Supervisors (the Supervisors are a
higher authority than the Commissioners) of Monterey County will determine that the Company’s applications for necessary permits
should be approved. This reasonable expectation is based, in part, on the expected benefits of the Project to the County and to the State
of California that include the following statistics and claims from Californians for Energy Independence:
| |
● |
Oil
and natural gas production in Monterey County plays a fundamental role in sustaining the energy supply and quality of life of the
County’s 440,000 residents; |
| |
● |
Oil
and natural gas are vital to ensuring the health and safety of California’s communities; |
| |
● |
the
oil and gas industry contributes to Monterey County’s economy by providing a safe and reliable energy supply that fuels cars,
heats homes, powers businesses, grows food and produces everyday products. County residents depend on oil and gas to produce and
deliver their food and water supply, and for the countless products they use every day (e.g., cell phones, computers, medical devices,
eyeglasses, asphalt roads, plastic kayaks, wet suits, tires, car batteries, etc.) and natural gas is an important local energy source
for heating and cooking; |
| |
● |
Roughly
75% of the oil and gas used in California is imported from foreign countries, many of which are unstable and/or have poor human rights,
labor and/or environmental standards; |
| |
● |
Monterey
County and California lead the way in safe, affordable and environmentally responsible oil and gas production with the world’s
strictest regulations; |
| |
● |
More
than 25 local, state and federal agencies oversee local oil and gas production in Monterey County; |
| |
● |
Monterey
County’s oil and gas workforce includes veterans, union members, first generation citizens, single parents and others, many
of whom live and raise their families in the County and care deeply about the community; |
| |
● |
Monterey
County’s oil and gas industry directly supports approximately 868 full-time jobs with benefits, and nearly 50% of the workforce
is ethnically diverse; |
| |
● |
Average
annual pay is $107,000 in oil industry: these are good paying jobs and the average wage is more than double the $51,900 average for
all private sector jobs in Monterey County; |
| |
● |
The
oil industry supports $69 million per year in wage payments to employees in the County; |
| |
● |
The
oil industry has a positive impact on the region, providing high paying, full-time jobs, and upward mobility for workers including
those with high school and/or technical degrees; |
| |
● |
Property
taxes represent the County’s largest source of general revenues, and are used to support schools, public safety, health, social
assistance, services to combat homelessness, and other services; |
| |
● |
Property
taxes paid to the County from two operators at the San Ardo Oilfield are approximately $44 million per year: these operators are
among the highest property-tax taxpayers in the County; and |
| |
● |
The
economic output of the oil industry in Monterey County is an estimated $644 million per year. |
The
Company has a reasonable expectation that the primary governmental regulatory agencies (i.e., CalGEM, State Water Boards and Monterey
County) that are and/or that will be involved in the permitting process will endeavor to avoid any unconstitutional takings of private
property that might result from denying permits for the South Salinas Project. The Company has a reasonable expectation that governmental
regulatory agencies will wish to avoid any unconstitutional takings of private property and that this should help expedite approval of
necessary permits.
Trio
LLC, which is Operator of the South Salinas Project, has significant experience in Monterey County in obtaining necessary permits (e.g.,
drilling permits for exploration and development wells, permits for Underground Injection Control water-disposal projects, permits for
constructing facilities, permits for constructing pipelines and power lines, etc.) from governmental regulatory agencies (e.g., CalGEM,
Monterey County, and other local agencies). More specifically, Trio LLC, as Operator, developed both the Lynch Canyon Oil Field and the
Hangman Hollow Area of the McCool Ranch Oil Field, both of which oilfields are located in Monterey County approximately seven miles north
of the Company’s South Salinas Project. The Company has a reasonable expectation that, given its own expertise and the expertise
and local experience of Trio LLC as an Operator, that the necessary permits may be obtained from governmental regulatory agencies
and thus that there will exist the legal right to develop the Company’s reserves in the South Salinas Project.
The
Company has a reasonable expectation that it will be able to negotiate an agreement with Exxon/AERA to utilize their existing idle gas
pipeline and one or more of their two idle oil pipelines that exist at the Company’s South Salinas Project. The pipelines extend
from the Company’s South Salinas Project to the San Ardo Oil Field that is located approximately three miles to the north. San
Ardo is a giant oilfield with cumulative oil recovery to-date of approximately 500 million barrels of oil – it is ranked among
the largest 100 oilfields in the United States by the Energy Information Administration of the U.S. Department of Energy and is commonly
cited as being among the largest ten oilfields in California. San Ardo uses significant natural gas for operations including to run steam-generators
to generate steam for steam-injection into wells as part of thermal oil-recovery operations (i.e., to produce the heavy oil that occurs
at the field). An additional supply of natural gas would be beneficial at San Ardo and the high-gravity oil that occurs in the Company’s
South Salinas Project could be beneficially blended with the heavy oil at San Ardo (source: personal communication between Trio personnel
and AERA Energy personnel: September, 2022). It is feasible that opening the three mile section of the pipelines will be agreeable to
the Company and to Exxon/AERA to the financial benefit of all parties. If this arrangement cannot be realized, and if funding and the
oil and gas reserves in the Project are sufficient, the Company and the Operator Trio LLC will seek permits for new oil and/or
gas pipelines, perhaps along the right-of-way of the existing pipelines to minimize new surface disturbance. The Company has a reasonable
expectation that it will be able to establish the transport of oil and/or gas, and especially gas, to market via pipelines, whether through
the existing Exxon/AERA pipelines or new pipelines.
The
Company has a reasonable expectation that the Company’s South Salinas Project will prove to have reserves approximately as estimated.
The Company has this reasonable expectation because it believes that:
| |
● |
The
geologic structures that contain oil and gas in the South Salinas Project occur approximately as mapped based on the integrated interpretations
of three-dimensional seismic data and data from wells already drilled at the Project, including the BM 2-2 and HV-3A discovery wells; |
| |
● |
The
estimated oil and gas reserves at the South Salinas Project are well-supported by geologic analogues to other large and prolific
oil and gas fields in California; and |
| |
● |
The
Reserve Report and Supplemental Reserve Report as prepared by KLSP are reasonable. |
The
Company has a reasonable expectation that it will have adequate funding to develop the reserves at the South Salinas Project. This reasonable
expectation of adequate funding is based on anticipated proceeds from this offering, anticipated operating revenues, and if necessary,
anticipated proceeds from additional capital raises:
| |
● |
The
Company believes that the South Salinas Project has the potential to be both beneficial to society and profitable to shareholders
and, for these and other reasons, that the Company’s IPO may raise funds sufficient to cover significant costs including the
costs of Phase 1. As discussed elsewhere hereunder, Phase 1 is a development project with expenditures that are appropriately scaled
to the capital raise that the Company anticipates may be realized in the near term in its IPO; |
| |
● |
There
are significant anticipated costs in the South Salinas Project primarily in years 2022-2027 due, in large part, to the estimated
costs of drilling and completing oil and gas wells and building Project infrastructure. It is anticipated that these costs will be
partly covered by funds raised in the Company’s IPO and furthermore that these costs will be partly and possibly entirely covered
by revenue from oil and gas sales; |
| |
● |
The
Company has a reasonable expectation that additional capital raises, if necessary and subsequent to the Company’s IPO, will
be successfully accomplished. This reasonable expectation is based on the experience and track record of the Company’s management
team which has a demonstrated ability to secure funding for oil and gas exploration, development and production ventures, including
that of Michael L. Peterson, our Chief Executive Officer and Frank C. Ingriselli, our Vice Chairman. The Company plans to leverage
the relationships and experience of Messrs. Peterson and Ingriselli and other members of its management team in private and public
equity fundraising to raise capital for the Company, if and as needed. Furthermore, this reasonable expectation is based on the confidence
of Spartan Capital Securities, LLC, the Company’s investment banker, in both the Company and in the Project, and the various
methods available for securing capital including financing plans that may be developed in collaboration with our bankers and/or future
lenders based on reserves, cash flow and/or other considerations. The Company has a reasonable expectation that, between cash and
equity, it will be able to raise whatever capital is necessary to successfully develop the South Salinas Project. |
For
all of the reasons discussed above in this section, the Company has a reasonable expectation that the Company’s South Salinas Project
will prove to have reserves approximately as estimated, that the Company will have adequate funding to develop the reserves, and that
there will exist the legal right to develop the Company’s reserves in the Project.
Employees
As
of November 30, 2023, we had 7 employees, all of which are located in the United States.
Subsidiaries
The
Company has no subsidiaries.
DESCRIPTION
OF REAL PROPERTY
Other
than our interest in the South Salinas Project described herein, we do not own any real property.
LEGAL
PROCEEDINGS
There
are no pending legal proceedings to which we are a party or in which any director, officer or affiliate of ours, any owner of record
or beneficially of more than 5% of any class of our voting securities, or security holder is a party adverse to us or has a material
interest adverse to us.
LOCATION
Our
principal executive office and operations are located at 5401 Business Park, Suite 115 Bakersfield, CA 93309 and our telephone number
is (661) 324-3911. Our website address is www.trio-petroleum.com. The information contained in, or accessible through, our website
does not constitute a part of this prospectus. We have included our website address in this prospectus solely as an inactive textual
reference.
MANAGEMENT
Executive
Officers, Non-executive employees and Directors
The
following table sets forth the name and age as of October 31, 2023, and position of the individuals who currently serve as directors
and executive officers of the Company. The following also includes certain information regarding the individual experience, qualifications,
attributes and skills of our directors and executive officers as well as brief statements of those aspects of our directors’ backgrounds
that led us to conclude that they are qualified to serve as directors.
| Name |
|
Age |
|
Position |
| Executive
Officers |
|
|
|
|
| Michael
L. Peterson |
|
61 |
|
Chief
Executive Officer and Director |
| Terry
Eschner |
|
67 |
|
President |
| Steven
Rowlee |
|
71 |
|
Chief
Operating Officer |
| Stan
Eschner |
|
91 |
|
Executive
Chairman and Director |
| Greg
Overholtzer |
|
66 |
|
Chief
Financial Officer |
| Non-Employee
Directors |
|
|
|
|
| Frank
C. Ingriselli |
|
69 |
|
Vice
Chairman and Director |
| William
J. Hunter |
|
54 |
|
Director |
| John
Randall |
|
81 |
|
Director |
| Thomas
J. Pernice |
|
61 |
|
Director |
Executive
Officers
Michael
L. Peterson (Chief Executive Officer and Director) has served as our Chief Executive Officer since October 2023 and as a Director
since July 2022. Mr. Peterson has served as CEO of Lafayette Energy Corporation since March 2022 and as a Director of Indonesia Energy
Corporation (NYSE:INDO) since January 2021. Since December 2020, he has served as the Chief Executive Officer of Nevo Motors, Inc., a
company that is commercializing low carbon emission trucks. From 2011 to 2018, Mr. Peterson served in several executive officer positions
at PEDEVCO Corp. (NYSE American: PED), a public company engaged primarily in the acquisition, exploration, development and production
of oil and natural gas shale plays in the United States. These positions included as Chief Executive Officer, President, Chief Financial
Officer and Executive Vice President. Since August 2016, Mr. Peterson has served as an independent director on the board of TrxAde Group,
Inc. (NASDAQ: MEDS), a web-based pharmaceutical market platform headquartered in Florida. From 2006 and 2012, he served in several executive
positions at Aemetis, Inc. (formerly AE Biofuels Inc.), a Cupertino, California-based global advanced biofuels and renewable commodity
chemicals company. These positions included as Interim President, Director and Executive Vice President. From December 2008 to July 2012,
Mr. Peterson also served as Chairman and Chief Executive Officer of Nevo Energy, Inc. (formerly Solargen Energy, Inc.), a Cupertino,
California-based developer of utility-scale solar farms which he helped form, which is currently operating as Nevo Motors, Inc.). From
2005 to 2006, Mr. Peterson served as a managing partner of American Institutional Partners, a venture investment fund based in Salt Lake
City. From 2000 to 2004, he served as a First Vice President at Merrill Lynch, where he helped establish a new private client services
division to work exclusively with high-net-worth investors. From September 1989 to January 2000, Mr. Peterson was employed by Goldman
Sachs & Co. in a variety of positions and roles, including as a Vice President with the responsibility for a team of professionals
that advised and managed over $7 billion in assets. Since Mr. Peterson’s retirement from Pedevco in 2018, he has served as the
President of the Taipei Taiwan Mission of The Church of Jesus Christ of Latter-day Saints, in Taipei, Taiwan. Mr. Peterson received his
Master degree of Business Administration at the Marriott School of Management and a Bachelor’s degree in Statistics and Computer
Science from Brigham Young University.
Terry
Eschner (President) has served as our President since inception. Prior to that, Mr. Terry Eschner has served as Senior Associate
Geological Advisor to Trio LLC from 2015 to 2022, as President of Sarlan Resources Inc. from 1995 to 2022, and as Manager of Core Description
LLC from 2010 to 2022. Mr. Terry Eschner has a BS in Geology from San Diego State University and a MA in Geology from the
University of Texas at Austin.
Steven
Rowlee (Chief Operating Officer) has
served as our Chief Operating Officer since inception. Mr. Rowlee has served as Vice President and director of Trio LLC, the operator
of the South Salinas Project, since 1984. Prior to that, Mr. Steven Rowlee served as West Coast Division Land Manager for Hanna Petroleum
Company from 1982 until 1984. Mr. Steven Rowlee has a B.A. in Psychology from Azusa Pacific University and M.A. in Education
from California State University Bakersfield.
Stan
Eschner (Executive Chairman and Director) has served as our Executive Chairman since inception. Since 1983, Mr. Eschner has served
as the Chairman Trio LLC, the operator of the South Salinas Project. From 1961 until 1983, Mr. Eschner held various positions at Occidental
Petroleum (NYSE: OXY), including geologist, Vice President of Domestic Operations and Vice President - Chief Geologist- Worldwide. Before
that, Mr. Eschner was a geologist (lieutenant) with the Army Corp of Engineers from 1955 until 1957, and a production geologist with
Shell Oil Co.1958 until 1961. Mr. Eschner has a Master of Arts degree in Geology from University of California, Los Angeles.
Greg
Overholtzer (Chief Financial Officer) has served as our Chief Financial Officer since February 2022. Since 2019, Mr. Overholtzer
has worked as a part-time Chief Financial Officer of Indonesia Energy Corp. (NYSE AMERICAN: INDO). In addition, since November 2019,
Mr. Overholtzer has served as a Consulting Director of Ravix Consulting Group. From December 2018 until November 2019, Mr. Overholtzer
served as a Field Consultant at Resources Global Professionals. From January 2012 until December 2018, Mr. Overholtzer served as the
Chief Financial Officer, Chief Accounting Officer and Controller of Pacific Energy Development (NYSE AMERICAN: PED). Mr. Overholtzer
holds a BA in Zoology and an MBA in Finance from the University of California, Berkeley.
Non-Employee
Directors
Frank
C. Ingriselli (Vice Chairman and Director) served as our Chief Executive Officer from February 2022 to October 2023, and has served
as a Director since February 2022. Also since February 2022, Mr. Ingriselli has served as a Director of Elephant Oil Corp., an oil and
gas company with assets in Africa, and as a Director of Lafayette Energy Corp., a privately held oil and gas company with assets in the
State of Louisiana. Since February 2019, Mr. Ingriselli has served as the President of Indonesia Energy Corp. (NYSE AMERICAN: INDO).
With over 44 years of experience in the energy industry, Mr. Ingriselli is a seasoned leader and entrepreneur with wide-ranging exploration
and production experience in diverse geographies, business climates and political environments. From 2005 to 2018, Mr. Ingriselli was
the founder, President, CEO and Chairman of PEDEVCO Corp. and Pacific Asia Petroleum, Inc., both energy companies which are or were listed
on the NYSE American. Prior to founding these two companies, from 1979 to 2001, Mr. Ingriselli worked at Texaco in diverse senior executive
positions involving exploration and production, power and gas operations, merger and acquisition activities, pipeline operations and
corporate development. The positions Mr. Ingriselli held at Texaco included President of Texaco Technology Ventures, President and CEO
of the Timan Pechora Company (owned by affiliates of Texaco, Exxon, Amoco, Norsk Hydro and Lukoil), and President of Texaco International
Operations, where he directed Texaco’s global initiatives in exploration and development. While at Texaco, Mr. Ingriselli, among
other activities, led Texaco’s initiatives in exploration and development in China, Russia, Australia, India, Venezuela and many
other countries. Mr. Ingriselli is also on the Board of Trustees of the Eurasia Foundation, and is the founder and Chairman of Brightening
Lives Foundation, Inc., a charitable public foundation. Mr. Ingriselli served as an independent member of the Board of Directors of NXT
Energy Solutions Inc. (TSX:SFD; OTC QB:NSFDF) from 2019 until January 2023. From 2016 through 2018, Mr. Ingriselli founded and was the
President and CEO of Blackhawk Energy Ventures Inc. which endeavored to acquire oil and gas assets in the United States for development
purposes. Mr. Ingriselli graduated from Boston University in 1975 with a B.S. in business administration. He also earned an M.B.A. from
New York University in both finance and international finance in 1977 and a J.D. from Fordham University School of Law in 1979.
William
J. Hunter (Director) has served as a Director since July 2022. From 2015 until 2022, Mr. Hunter served as Managing Partner of Hunter
Resources LLC, a strategic and financial consulting firm. From 2017 until 2021, Mr. Hunter served as the President, Chief Financial Officer
and Director of Advent Technologies post-merger with AMCI Acquisition Corp. From 2013 until 2015, Mr. Hunter served as Managing Director
of the Industrial Group of Nomura Securities. William Hunter received his B.Sc. from DePaul University in Chicago and an MBA with distinction
from the Kellstadt School of Business at DePaul University.
John
Randall (Director) has served as a Director since November 2021. From April 2017 until November 2021, Mr. Randall served as a professional
geologist where he consulted to various companies and lenders. From April 2016 until April 2017, Mr. Randall was Vice President of the
California Business Unit of Azimuth Energy. Before this, from 2003 until April 2016, Mr. Randall served as Senior Geologist at Freeport-McMoran
Oil and Gas. From 1984 until 2001 Mr. Randall was a Geologist and senior manager at various divisions of Chevron in California and also
during that time spent 4 years as an expatriate as the geological operations manager at Chevron’s Tengiz operations in Kazakhstan.
From 1977 until 1984 Mr. Randall was a Geology Manager for Gulf Oil Corp and from 1970 until 1977 he was a development geologist for
Union Oil Company. Mr. Randall holds an MS in Geology and a BS in Geology from Southern Illinois University.
Thomas
J. Pernice (Director) has served as a Director since November 2021. Mr. Pernice has served as the President of Modena Holding Corporation,
a company providing corporate and executive advisory services, since 2000. In addition, he has served as a partner with The Abraham Group,
an international strategic consulting firm and with Green Partners USA, LLC, a private equity real estate fund dedicated to green building
since 2007. In 2004, he was appointed Senior Policy Advisor and Executive Director of the Secretary of Energy Advisory Board at the U.S.
Department of Energy where he served until 2006. He was a partner and Managing Director of Cappello Group, a boutique investment and
merchant bank in Los Angeles from 2000 to 2004. Mr. Pernice also served in the Family Offices of billionaire industrialist David H. Murdock
where he was a member of the Chairman’s Global Leadership Team and Executive Officer of Dole Food Company, Inc. (NYSE: DOL) from
1992 to 2000. Mr. Pernice was as a Presidential Appointee and member of the senior White House staff serving from 1984 to 1992 where
he traveled as a diplomatic representative of the United States to more than 92 countries. Further, Mr. Pernice has served as a member
of the board of directors of D3 Energy Corporation since 2022, and Panvaxal, LLC, a private biotechnology company since 2019. Mr. Pernice
holds a BA in Broadcast Journalism from the University of Southern California.
Family
Relationships
Stan
Eschner is Terry Eschner’s father. There are no other family relationships among our directors or executive officers.
Director
or Officer Involvement in Certain Prior Legal Proceedings
Our
directors and executive officers were not involved in any legal proceedings as described in Item 401(f) of Regulation S-K in the past
ten years, other than Mr. Pernice who served as a co-founder of Gibraltar Associates, LLC, a private company, from 2007 until 2013, which
entity went into receivership in approximately September 2014.
Board
Composition and Election of Directors
Our
board of directors currently consists of six members. Under our amended and restated bylaws, the number of directors will be determined
from time to time by our board of directors.
Director
Independence
Our
board has determined that Frank Ingriselli, Stan Eschner and Michael Peterson currently have relationships that would interfere with
the exercise of independent judgment in carrying out the responsibilities of a director, such that they cannot be deemed “independent”
as that term is defined under the rules of the NYSE American, or the NYSE American rules. As permitted by the NYSE American, we intend
to phase-in compliance with the NYSE American’s director independence requirements within the schedule outlined in the NYSE American
rules. Our board has determined that William Hunter, John Randall and Thomas J. Pernice are all “independent” as that term
is defined under the NYSE American rules. That schedule requires a majority of the members of our Board to be independent within one
year of listing. It also requires one member of each Board committee be independent at the time of listing, a majority of Board committee
members to be independent within 90 days of listing, and all Board committee members to be independent within one year from listing.
Classified
Board of Directors
In
accordance with our amended and restated certificate of incorporation and amended and restated bylaws, our board of directors is divided
into three classes with staggered, three-year terms. At each annual meeting of stockholders, the successors to directors whose terms
then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. Our
directors are divided among the three classes as follows:
| |
● |
the
Class I directors are John Randall and Thomas J. Pernice, and their terms will expire at our first annual meeting of stockholders
following our IPO; |
| |
|
|
| |
● |
the
Class II directors are Michael L. Peterson and William J. Hunter, and their terms will expire at our second annual meeting of stockholders
following our initial public offering, and |
| |
|
|
| |
● |
the
Class III directors are Frank C. Ingriselli and Stan Eschner, and their terms will expire at the third annual meeting of stockholders
following our initial public offering. |
Our
amended and restated certificate of incorporation and amended and restated bylaws provide that the authorized number of directors may
be changed only by resolution of the board of directors. Any additional directorships resulting from an increase in the number of directors
will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. The
division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management
or a change in control of our company. Our directors may be removed only for cause by the affirmative vote of the holders of at least
two-thirds of our outstanding voting stock entitled to vote in the election of directors.
Board
Leadership Structure
Our
corporate governance guidelines provide that, if the chairman of the board is a member of management or does not otherwise qualify as
independent, the independent directors of the board may elect a lead director. The lead director’s responsibilities include, but
are not limited to: presiding over all meetings of the board of directors at which the chairman is not present, including any executive
sessions of the independent directors; approving board meeting schedules and agendas; and acting as the liaison between the independent
directors and the chief executive officer and chairman of the board. Our corporate governance guidelines further provide the flexibility
for our board of directors to modify our leadership structure in the future as it deems appropriate.
Role
of the Board in Risk Oversight
One
of the key functions of our board of directors is informed oversight of our risk management process. Our board of directors will not
have a standing risk management committee, but will rather administer this oversight function directly through our board of directors
as a whole, as well as through various standing committees of our board of directors that address risks inherent in their respective
areas of oversight. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure and our
Audit Committee has the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken
to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management
is undertaken. Our Audit Committee also monitors compliance with legal and regulatory requirements. Our Nominating and Corporate Governance
Committee monitors the effectiveness of our corporate governance practices, including whether they are successful in preventing illegal
or improper liability-creating conduct. Our Compensation Committee assesses and monitors whether any of our compensation policies and
programs has the potential to encourage excessive risk-taking. While each committee is responsible for evaluating certain risks and overseeing
the management of such risks, our entire board of directors will be regularly informed through committee reports about such risks.
Board
Committees
We
have the following board of directors committees: an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance
Committee. The composition and responsibilities of each committee are described below. Members will serve on these committees until their
resignation or until otherwise determined by our board of directors. Each committee’s charter is available under the Corporate
Governance section of our website at www.triopetro.com. The reference to our website address does not constitute incorporation
by reference of the information contained at or available through our website, and you should not consider it to be a part of this prospectus.
Audit
Committee. The Audit Committee’s responsibilities include:
| |
● |
appointing,
approving the compensation of, and assessing the independence of our registered public accounting firm; |
| |
|
|
| |
● |
overseeing
the work of our registered public accounting firm, including through the receipt and consideration of reports from such firm; |
| |
|
|
| |
● |
reviewing
and discussing with management and the registered public accounting firm our annual and quarterly financial statements and related
disclosures; |
| |
|
|
| |
● |
coordinating
our board of directors’ oversight of our internal control over financial reporting, disclosure controls and procedures and
code of business conduct and ethics; |
| |
|
|
| |
● |
discussing
our risk management policies; |
| |
|
|
| |
● |
meeting
independently with our internal auditing staff, if any, registered public accounting firm and management; |
| |
● |
reviewing
and approving or ratifying any related person transactions; and |
| |
|
|
| |
● |
preparing
the audit committee report required by SEC rules. |
The
members of our audit committee are William Hunter (chairperson), Thomas J. Pernice and John Randall. All members of our audit committee
meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NYSE American. Our board has
determined that William Hunter is an audit committee financial expert as defined under the applicable rules of the SEC and has the requisite
financial sophistication as defined under the applicable rules and regulations of the NYSE American. Under the rules of the SEC, members
of the audit committee must also meet heightened independence standards. However, a minority of the members of the audit committee may
be exempt from the heightened audit committee independence standards for one year from the date of effectiveness of the Registration
Statement. Our board of directors has determined that all members of the audit committee are independent under the heightened audit committee
independence standards of the SEC and the NYSE American.
As
allowed under the applicable rules and regulations of the SEC and the NYSE American, we intend to phase in compliance with the heightened
audit committee independence requirements prior to the end of the one-year transition period. The audit committee operates under a written
charter that satisfies the applicable standards of the SEC and the NYSE American.
Compensation
Committee. The Compensation Committee’s responsibilities include:
| |
● |
reviewing
and approving, or recommending for approval by the board of directors, the compensation of our Chief Executive Officer and our other
executive officers; |
| |
|
|
| |
● |
overseeing
and administering our cash and equity incentive plans; |
| |
|
|
| |
● |
reviewing
and making recommendations to our board of directors with respect to director compensation; |
| |
|
|
| |
● |
reviewing
and discussing annually with management our “Compensation Discussion and Analysis,” to the extent required; and |
| |
|
|
| |
● |
preparing
the annual compensation committee report required by SEC rules, to the extent required. |
The
members of our compensation committee are Thomas J. Pernice (chair) and William Hunter. Each of the members of our compensation committee
is independent under the applicable rules and regulations of the NYSE American and is a “non-employee director” as defined
in Rule 16b-3 promulgated under the Exchange Act. The compensation committee operates under a written charter that satisfies the applicable
standards of the SEC and the NYSE American.
Nominating
and Corporate Governance Committee. The Nominating and Corporate Governance Committee’s responsibilities include:
| |
● |
identifying
individuals qualified to become board members; |
| |
|
|
| |
● |
recommending
to our board of directors the persons to be nominated for election as directors and to each board committee; |
| |
|
|
| |
● |
developing
and recommending to our board of directors corporate governance guidelines, and reviewing and recommending to our board of directors
proposed changes to our corporate governance guidelines from time to time; and |
| |
|
|
| |
● |
overseeing
a periodic evaluation of our board of directors. |
The
members of our nominating and corporate governance committee are Thomas J. Pernice (chairperson) and John Randall. Each of the members
of our Nominating and Corporate Governance Committee is an independent director under the applicable rules and regulations of the NYSE
American relating to nominating and corporate governance committee independence. The Nominating and Corporate Governance Committee operates
under a written charter that satisfies the applicable standards of the SEC and the NYSE American.
Compensation
Committee Interlocks and Insider Participation
No
member of our compensation committee is a current or former officer or employee. None of our executive officers served as a director
or a member of a compensation committee (or other committee serving an equivalent function) of any other entity, one of whose executive
officers served as a director or member of our compensation committee during the last completed fiscal year.
Code
of Ethics and Code of Conduct
We
have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal
executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
Our code of business conduct and ethics is available under the Corporate Governance section of our website at www.triopetro.com.
In addition, we have posted on our website all disclosures that are required by law or the rules of the NYSE American concerning any
amendments to, or waivers from, any provision of the code. The reference to our website address does not constitute incorporation by
reference of the information contained at or available through our website, and you should not consider it to be a part of this prospectus.
EXECUTIVE
AND DIRECTOR COMPENSATION
Summary
Compensation
The
following sets forth the compensation paid by us to our named executive officers for the period from July 19, 2021 (Inception) through
October 31, 2022 and for the fiscal year ended October 31, 2023.
| Name and Principal Position | |
Year | | |
Salary ($) | | |
Bonus ($) | | |
Stock Awards ($) | | |
Option Awards ($) | | |
All Other Compensation ($) | | |
Total ($) | |
| Michael Peterson, | |
| 2023 | | |
| 8,974 | | |
| — | | |
| — | | |
| — | | |
| 31,538 | | |
| 40,512 | |
| Chief Executive Officer (1) | |
| 2022 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Frank Ingriselli, | |
| 2023 | | |
| 320,000 | | |
| — | | |
| 214,000 | | |
| — | | |
| — | | |
| 534,000 | |
| Chief
Executive Officer and Vice Chairman (2) | |
| 2022 | | |
| 160,000 | | |
| — | | |
| 61,750 | | |
| — | | |
| — | | |
| 191,725 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Ron Bauer, | |
| 2023 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Chief
Executive Officer (3) | |
| 2022 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Greg Overholtzer, | |
| 2023 | | |
| 85,000 | | |
| — | | |
| | | |
| — | | |
| — | | |
| 85,000 | |
| Chief
Financial Officer (4) | |
| 2022 | | |
| 25,000 | | |
| — | | |
| 6,175 | | |
| — | | |
| — | | |
| 31,173 | |
| (1) |
Effective
as of October 23, 2023, we entered into an employment agreement with Mr. Peterson for a term ending on December 31, 2025. Per his
employment agreement, Mr. Peterson was granted 1,000,000 restricted stock units (“RSU”) which are subject to Continuous
Service (as such term is defined in the 2022 Equity Incentive Plan) and have a vesting period of 25% every six months. As of October
31. 2023, none of the shares of restricted stock awarded to Mr. Peterson have vested. Under such agreement, we also agreed to pay
Mr. Peterson a salary of $350,000 per year and an annual bonus, targeted at 100% of base salary, as determined by the Board based on
his performance and the achievements of the Company. Other compensation reflects fees paid to Mr. Peterson for serving on the Board
and Board committees while serving as an non-employee director of the Company for most of the Company’s fiscal year ended
October 31, 2023. |
| |
|
| (2) |
Effective
as of February 1, 2022, we entered into an employment agreement with Mr. Ingriselli for a term ending on December 31, 2024, which
employment agreement was terminated as of October 23, 2023, as a result of Mr. Ingriselli’s resignation as the Chief Executive
Officer of the Company. Per his employment agreement, Mr. Ingriselli was granted 1,000,000 restricted stock units (“RSU”)
which were, subject to Continuous Service, had a vesting period of two years, and as of October 31, 2023, all except 250,000 of such
RSUs have vested. The remaining 250,000 RSUs will vest on February 1, 2024, as long as Mr. Ingriselli continues to serve as a director
of the Company on that date. The Company entered into a consulting agreement with Mr. Ingriselli, as of October 23, 2023, which
has a term until December 31, 2023. |
| |
|
| (3) |
Effective
as of July 19, 2021 (Inception) through January 31, 2022, Ron Bauer served as our Chief Executive Officer of the Company. We did
not enter into an employment agreement with Mr. Bauer, nor did he receive a salary or any other compensation during that time
at this position. |
| |
|
| (4) |
Effective
as of February 1, 2022, we entered into an employment agreement with Mr. Overholtzer for a term ending on December 31, 2024, which
shall auto-renew for additional one-year terms. Under such agreement, we have agreed to pay Mr. Overholtzer a salary of $60,000,
provided his salary increased to $120,000 on the first date the Company’s shares were publicly traded. He is eligible for an
annual bonus, beginning in 2022, targeted at 50% of base salary, as determined by the Board based on his performance and he achievement
by the Company of financial, operating and other objectives set by the Board.
Per his employment agreement, Mr. Overholtzer also was granted of 100,000 RSUs which will, subject to continued employment,
vest over a two-year vesting schedule, under which 25,000 of the RSUs were subject to vesting upon the earlier of three months after
the IPO or six months after the grant date, February 1, 2022, and thereafter vesting in equal tranches every six months until fully
vested or Mr. Overholtzer’s Continued Service is terminated prior thereto. As of October 31, 2023, 75,000 of the RSUs have
vested, and the remaining 25,000 RSUs will vest on February 1, 2024, as long as Mr. Overholtzer remains in Continuous Service with
the Company on that date. |
Outstanding
Equity Awards at Year-End
The
following table provides information on outstanding equity awards as of October 31, 2023 to our NEOs.
| Name | |
Number of shares or units of stock that have not vested | | |
Market value of shares or units of stock that have not vested | | |
Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested | | |
Equity Incentive Plan awards: Market or payout value of unearned shares, units or other rights that have not vested | |
| Michael Peterson
(1) | |
| - | | |
| - | | |
| 1,000,000 | | |
$ | 185,250 | |
| Frank Ingriselli (2) | |
| | | |
| | | |
| 750,000 | | |
$ | 185,250 | |
| Greg Overholtzer (3) | |
| - | | |
| - | | |
| 75,000 | | |
$ | 18,525 | |
| (1) |
Mr. Peterson was granted an award of 1,000,000 RSUs,
subject to Continuous Service, with a vesting schedule in which 25% of the shares of restricted stock will vest six months after
effective date of his employment agreement, and the remainder shall vest in equal tranches every six months thereinafter until either
the shares of restricted stock are fully vested or Mr. Peterson’s Continuous Service with the Company terminates, whichever
occurs first. As of October 31. 2023, none of the shares of restricted stock awarded to Mr. Peterson have vested. |
| |
|
| (2) |
Mr.
Ingriselli was granted 1,000,000 restricted stock units (“RSU”) which were, subject to Continuous Service, had
a vesting period of two years, and as of October 31, 2023, all except 250,000 of such RSUs have vested The remaining 250,000 RSUs will vest on February 1, 2024, as long as Mr. Ingriselli continues to serve as a director of the
Company on that date. |
| |
|
| (3) |
Mr.
Overholtzer was granted 100,000 RSUs which were, subject to Continuous Service, had a vesting period of two years, and as of October
31, 2023, all except 25,000 of such RSUs have vested. The remaining 75,000 RSUs will vest on February 1, 2024, as long as Mr. Overholtzer
remains in Continuous Service with the Company on that date. |
Employment
Agreement/Consulting Agreement - Frank Ingriselli
Effective
as of February 1, 2022, we entered into an employment agreement with our former CEO, Frank Ingriselli. Mr. Ingriselli was employed effective
February 25, 2022 for a term ending on December 31, 2024, but his employment was terminated, as of October 23, 2023, as a result of his
resignation as CEO of the Company.
On
October 16, 2023, the Company and Global Venture Investments LLC (“Consultant”), a Delaware limited liability company and
a wholly-owned consulting firm owned 100% by Mr. Ingriselli, entered into a Consulting Agreement (the “Consulting Agreement”),
effective as of October 23, 2023, and continuing through December 31, 2023. Pursuant to the Consulting Agreement, Mr. Ingriselli provides
services relating to investor relations, public relations, financing strategies, corporate strategies, and development of business opportunities
and providing background information with respect to Company’s history. In consideration for his consulting services, and pursuant
to the terms of the Consulting Agreement, the Company has agreed to pay Mr. Ingriselli a cash consulting fee equal to $10,000 per month,
payable within five business days after the commencement of each calendar month during the term of the Consulting Agreement. With prior
written consent from the Company, the Company shall reimburse Mr. Ingriselli for all reasonable out-of-pocket travel expenses incurred
by Mr. Ingriselli when such travel is specifically requested by the Company. Pursuant to the Consulting Agreement, all Confidential Information
(as defined in the Consulting Agreement) remains the property of the Company, including, without limitation, the Company’s proprietary
information, technical data, trade secrets, know-how, financial information, product plans, products, services, research, and developments.
Employment
Agreement- Greg Overholtzer
Effective
as of February 1, 2022, we entered into an employment agreement with our Chief Financial Officer, Greg Overholtzer. Mr. Overholtzer is
employed effective February 25, 2022 for a term ending on December 31, 2024, which shall auto-renew for additional one-year terms. Mr.
Overholtzer reports directly to the Board and performs his services in California.
We
have agreed to pay Mr. Overholtzer a salary of $60,000, provided his salary increased to $120,000 on the first date the Company’s
shares were publicly traded. He became eligible for an annual bonus beginning in 2022, targeted at 50% of base salary, as determined
by the Board based on his performance and the achievement by the Company of financial, operating and other objectives set by the Board.
Mr. Overholtzer was also granted an award of 100,000 RSUs which, as of October 31, 2023, have vested with respect
to 75,000 RSUs, and the remaining and the remaining 25,000 RSUs will vest on February 1, 2024,as long as Mr. Overholtzer remains
in Continuous Service on such date. Mr. Overholtzer also receives a standard benefit package, and reimbursement for reasonable
business and travel expenses. He also is eligible for twenty-five vacation days per annum. Although Mr. Overholtzer is employed pursuant
to a term, either side may terminate his Agreement earlier. We may terminate Mr. Overholtzer’s employment with or without Cause.
“Cause” means: (a) conviction of, or plea of nolo contendere to any felony or crime involving dishonesty or moral turpitude
(whether or not a felony); (b) any action by Mr. Overholtzer involving fraud, breach of the duty of loyalty, malfeasance or willful misconduct;
(c) the failure or refusal by Mr. Overholtzer to perform any material duties hereunder or to follow any lawful and reasonable direction
of the Company; (d) intentional damage to any property of the Company; (e) chronic neglect or absenteeism in the performance of Mr. Overholtzer’s
duties; (f) willful misconduct, or other material violation of Company policy or code of conduct that causes a material adverse effect
upon the Company; (g) material uncured breach of any written agreement with the Company (subject to a 10 business day cure right on behalf
of the Company); or (h) any action that in the reasonable belief of the Company shall or potentially shall subject the Company to negative
or adverse publicity or effects.
Mr.
Overholtzer may resign on 90 days’ written notice.
In
the event of a termination without Cause, we have agreed, if Mr. Overholtzer signs a release in a form provided by the Company, to pay
Mr. Overholtzer severance of twelve months of Base Salary continuation for the twelve month period of time following the separation date.
Delaware law governs Mr. Overholtzer’s agreement, provided that any disputes are resolved via arbitration in San Jose, California.
Mr.
Overholtzer has agreed to the Company’s standard form of Confidentiality, Non-Solicitation, and Non-Compete Agreement as a condition
of execution of the Agreement.
Employment
Agreement- Steven A. Rowlee
We
entered into an employment agreement with our COO, Steven A. Rowlee, effective as of the date of the consummation of our initial
public offering, in April 2023, for a term ending on December 31, 2024, which shall auto-renew for additional one-year terms. Mr. Rowlee
reports to the CEO and performs his services in California.
We
have agreed to pay Mr. Rowlee a salary of $170,000. He is eligible for an annual bonus, beginning in 2023, targeted at 50% of base salary,
as determined by the Board based on his performance and the achievement by the Company of financial, operating and other objectives set
by the Board. We are able to reevaluate base salary in the event we purchase all or some of the assets of Trio LLC or if all of a substantial
portion of Trio LLC’s assets are disposed or sold to a third party unaffiliated with the Company. Mr. Rowlee was also granted
an award of 150,000 RSUs, subject to Continuous Service, with a vesting schedule in which 25% of the RSUs vested
6 months after the IPO, and the remainder shall vest in equal tranches every 6 months thereinafter until either the RSUs are
fully vested or Mr. Rowlee’s Continuous Service with the Company terminates, whichever occurs first. As of October 31, 2023, 37,500 of the RSUs have vested and the remaining 112,500 RSUs will vest in equal tranches of 37,500 RSUs on each of April 20,
2024, October 20, 2024 and April 20, 2025. Mr. Rowlee also receives a standard benefit package, and reimbursement for reasonable
business and travel expenses. He also is eligible for twenty-five vacation days per annum. Although Mr. Rowlee is employed pursuant to
a term, either side may terminate his Agreement earlier. We may terminate Mr. Rowlee’s employment with or without Cause. “Cause”
means: (a) conviction of, or plea of nolo contendere to any felony or crime involving dishonesty or moral turpitude (whether or not a
felony); (b) any action by Mr. Rowlee involving fraud, breach of the duty of loyalty, malfeasance or willful misconduct; (c) the failure
or refusal by Mr. Rowlee to perform any material duties hereunder or to follow any lawful and reasonable direction of the Company; (d)
intentional damage to any property of the Company; (e) chronic neglect or absenteeism in the performance of Mr. Rowlee’s duties;
(f) willful misconduct, or other material violation of Company policy or code of conduct that causes a material adverse effect upon the
Company; (g) material uncured breach of any written agreement with the Company (subject to a 10 business day cure right on behalf of
the Company); or (h) any action that in the reasonable belief of the Company shall or potentially shall subject the Company to negative
or adverse publicity or effects.
Mr.
Rowlee may resign on 90 days’ written notice.
In
the event of a termination without Cause, we have agreed, if Mr. Rowlee signs a release in a form provided by the Company, to pay Mr.
Rowlee severance of twelve months of Base Salary continuation for the twelve month period of time following the separation date. Delaware
law governs Mr. Rowlee’s agreement, provided that any disputes are resolved via arbitration in San Jose, California.
Mr.
Rowlee has agreed to the Company’s standard form of Confidentiality, Non-Solicitation, and Non-Compete Agreement as a condition
of execution of the Agreement.
Employment
Agreement- Terence B. Eschner
We
entered into an employment agreement with our President, Terence B. Eschner, effective as of the date of the consummation of our initial
public offering, in April 2023, for a term ending on December 31, 2024, which shall auto-renew for additional one-year terms. Mr. Eschner
reports to the CEO and performs his services in Colorado or California.
We
have agreed to pay Mr. Eschner a salary of $170,000. He is eligible for an annual bonus, beginning in 2023, targeted at 50% of base salary,
as determined by the Board based on his performance and the achievement by the Company of financial, operating and other objectives set
by the Board. We are able to reevaluate base salary in the event we purchase all or some of the assets of Trio LLC or if all of a substantial
portion of Trio LLC’s assets are disposed or sold to a third party unaffiliated with the Company. Mr. Eschner was also granted
an award of 150,000 RSUs, subject to Continuous Service, with a vesting schedule in which 25% of the RSUs vested
6 months after the IPO, and the remainder shall vest in equal tranches every 6 months thereinafter until either the RSUs are
fully vested or Mr. Eschner’s Continuous Service with the Company terminates, whichever occurs first. As of October 31,
2023, 37,500 of the RSUs have vested and the remaining 112,500 RSUs will vest in equal tranches of 37,500 RSUs on each of April 20, 2024,
October 20, 2024 and April 20, 2025. Mr. Eschner also receives a standard benefit package, and reimbursement for reasonable business
and travel expenses. He also is eligible for twenty-five vacation days per annum. Although Mr. Eschner is employed pursuant to a term,
either side may terminate his Agreement earlier. We may terminate Mr. Eschner’s employment with or without Cause. “Cause”
means: (a) conviction of, or plea of nolo contendere to any felony or crime involving dishonesty or moral turpitude (whether or not a
felony); (b) any action by Mr. Eschner involving fraud, breach of the duty of loyalty, malfeasance or willful misconduct; (c) the failure
or refusal by Mr. Eschner to perform any material duties hereunder or to follow any lawful and reasonable direction of the Company; (d)
intentional damage to any property of the Company; (e) chronic neglect or absenteeism in the performance of Mr. Eschner’s duties;
(f) willful misconduct, or other material violation of Company policy or code of conduct that causes a material adverse effect upon the
Company; (g) material uncured breach of any written agreement with the Company (subject to a 10 business day cure right on behalf of
the Company); or (h) any action that in the reasonable belief of the Company shall or potentially shall subject the Company to negative
or adverse publicity or effects.
Mr.
Eschner may resign on 90 days’ written notice.
In
the event of a termination without Cause, we have agreed, if Mr. Eschner signs a release in a form provided by the Company, to pay Mr.
Eschner severance of twelve months of Base Salary continuation for the twelve month period of time following the separation date. Delaware
law governs Mr. Eschner’s agreement, provided that any disputes are resolved via arbitration in San Jose, California.
Mr.
Eschner has agreed to the Company’s standard form of Confidentiality, Non-Solicitation, and Non-Compete Agreement as a condition
of execution of the Agreement.
Employment
Agreement- Stanford Eschner
We
entered into an employment agreement with our Chairman, Stanford Eschner, effective as of the consummation of our initial public offering,
in April 2023, for a term ending on December 31, 2024, which shall auto-renew for additional one-year terms. Mr. Eschner reports to the
CEO and performs his services in California.
We
have agreed to pay Mr. Eschner a salary of $170,000. He is eligible for an annual bonus, beginning in 2023, targeted at 50% of base salary,
as determined by the Board based on his performance and the achievement by the Company of financial, operating and other objectives set
by the Board. We are able to reevaluate base salary in the event we purchase all or some of the assets of Trio LLC or if all of a substantial
portion of Trio LLC’s assets are disposed or sold to a third party unaffiliated with the Company. Mr. Eschner was also granted
an award of 150,000 RS, subject to Continuous Service, with a vesting schedule in which 25% of the RSUs vested 6 months
after the IPO, and the remainder shall vest in equal tranches every 6 months thereinafter until either the RSS are fully vested
or Mr. Eschner’s Continuous Service with the Company terminates, whichever occurs first. As of October 31,
2023, 37,500 of the RSUS have vested and the remaining 112,500 RSUs will vest in equal tranches of 37,500 RSUs on each of April 20, 2024,
October 20, 2024 and April 20, 2025. Mr. Eschner also receives a standard benefit package, and reimbursement for reasonable business
and travel expenses. He also is eligible for twenty-five vacation days per annum. Although Mr. Eschner is employed pursuant to a term,
either side may terminate his Agreement earlier. We may terminate Mr. Eschner’s employment with or without Cause. “Cause”
means: (a) conviction of, or plea of nolo contendere to any felony or crime involving dishonesty or moral turpitude (whether or not a
felony); (b) any action by Mr. Eschner involving fraud, breach of the duty of loyalty, malfeasance or willful misconduct; (c) the failure
or refusal by Mr. Eschner to perform any material duties hereunder or to follow any lawful and reasonable direction of the Company; (d)
intentional damage to any property of the Company; (e) chronic neglect or absenteeism in the performance of Mr. Eschner’s duties;
(f) willful misconduct, or other material violation of Company policy or code of conduct that causes a material adverse effect upon the
Company; (g) material uncured breach of any written agreement with the Company (subject to a 10 business day cure right on behalf of
the Company); or (h) any action that in the reasonable belief of the Company shall or potentially shall subject the Company to negative
or adverse publicity or effects.
Mr.
Eschner may resign on 90 days’ written notice.
In
the event of a termination without Cause, we have agreed, if Mr. Eschner signs a release in a form provided by the Company, to pay Mr.
Eschner severance of twelve months of Base Salary continuation for the twelve month period of time following the separation date. Delaware
law governs Mr. Eschner’s agreement, provided that any disputes are resolved via arbitration in San Jose, California.
Mr.
Eschner has agreed to the Company’s standard form of Confidentiality, Non-Solicitation, and Non-Compete Agreement as a condition
of execution of the Agreement.
Employment
Agreement- Michael L. Peterson
We
entered into an employment agreement with Michael L. Peterson, who became our CEO, effective as of October 23, 2023, for a term ending
on December 31, 2025, which shall auto-renew for additional one-year terms. Mr. Peterson reports directly the Board and performs his
services in Utah.
We
have agreed to pay Mr. Peterson a salary of $350,000. He is eligible for an annual bonus targeted at 100% of base salary, as determined
by the Board based on his performance and the achievement by the Company of financial, operating and other objectives set by the Board.
Mr. Peterson was also granted an award of 1,000,000 of restricted stock, subject to Continuous Service, with a vesting
schedule in which 25% of the shares of restricted stock will vest 6 months after effective date of his employment agreement, and
the remainder shall vest in equal tranches every 6 months thereinafter until either the shares of restricted stock are fully vested
or Mr. Peterson’s Continuous Service with the Company terminates, whichever occurs first. As of October 31.
2023, none of the shares of restricted stock awarded to Mr. Peterson have vested. Mr. Peterson also receives a standard benefit package,
and reimbursement for reasonable business and travel expenses. He also is eligible for twenty-five vacation days per annum. Although
Mr. Peterson is employed pursuant to a term, either the Company or Mr. Peterson may terminate his employment earlier. We may terminate
Mr. Peterson’s employment with or without Cause. “Cause” means: (a) conviction of, or plea of nolo contendere to any
felony or crime involving dishonesty or moral turpitude (whether or not a felony); (b) any action by Mr. Peterson involving fraud, breach
of the duty of loyalty, malfeasance or willful misconduct; (c) the failure or refusal by Mr. Peterson to perform any material duties
hereunder or to follow any lawful and reasonable direction of the Company; (d) intentional damage to any property of the Company; (e)
chronic neglect or absenteeism in the performance of Mr. Peterson’s duties; (f) willful misconduct, or other material violation
of Company policy or code of conduct that causes a material adverse effect upon the Company; (g) material uncured breach of any written
agreement with the Company (subject to a 10 business day cure right on behalf of the Company); or (h) any action that in the reasonable
belief of the Company shall or potentially shall subject the Company to negative or adverse publicity or effects.
Mr.
Peterson may resign on 90 days’ written notice.
In
the event of a termination without Cause, we have agreed, if Peterson signs a release in a form provided by the Company, to pay Mr. Peterson
severance of twelve months of Base Salary continuation for the twelve month period of time following the separation date. Delaware law
governs Mr. Peterson’s employment agreement, provided that any disputes are resolved via arbitration in San Jose, California.
Mr.
Peterson has agreed to the Company’s standard form of Confidentiality, Non-Solicitation, and Non-Compete Agreement as a condition
of execution of the Agreement.
Incentive
Award Plans
2022
Equity Incentive Plan
We
have adopted and approved the 2022 Equity Incentive Plan (the “2022 Incentive Plan”). Under the 2022 Incentive Plan, we may
grant cash and equity incentive awards to eligible service providers in order to attract, motivate and retain the talent for which we
compete. The material terms of the 2022 Incentive Plan are summarized below.
Types
of Awards. The 2022 Incentive Plan provides for the grant of non-qualified stock options (“NQSOs”), incentive stock
options (“ISOs”), restricted stock awards, restricted stock and restricted stock units (“RSUs”), equity appreciation
rights, and other forms of stock-based compensation.
Eligibility
and Administration. Employees, officers, consultants, directors, and other service providers of the Company and its subsidiaries
are eligible to receive awards under the 2022 Incentive Plan. The 2022 Incentive Plan is administered by the board which may delegate
its duties and responsibilities to committees of the company’s directors and/or officers (all such bodies and delegates referred
to collectively as the plan administrator), subject to certain limitations that may be imposed under Section 16 of the Exchange Act,
and/or other applicable law or stock exchange rules, as applicable. The plan administrator has the authority to make all determinations
and interpretations under, prescribe all forms for use with, and adopt rules for the administration of, the 2022 Incentive Plan, subject
to its express terms and conditions. The plan administrator also sets the terms and conditions of all awards under the 2022 Incentive
Plan, including any vesting and vesting acceleration conditions.
Share
Reserve. Pursuant to the 2022 Incentive Plan, we have reserved 4,000,000 shares of the shares of Common Stock for issuance thereunder.
The share reserve is subject to the following adjustments:
| |
● |
The share limit is increased
by the number of shares subject to awards granted that later are forfeited, expire or otherwise terminate without issuance of shares,
or that are settled for cash or otherwise do not result in the issuance of shares. |
| |
|
|
| |
● |
Shares that are withheld
upon exercise to pay the exercise price of a stock option or satisfy any tax withholding requirements are added back to the share
reserve and again are available for issuance under the 2022 Incentive Plan. |
Awards
issued in substitution for awards previously granted by a company that merges with, or is acquired by, the Company do not reduce the
share reserve limit under the 2022 Incentive Plan.
Stock
Options and Equity Appreciation Rights. ISOs may be granted only to employees of the Company, or to employees of a parent or
subsidiary of the Company, determined as of the date of grant of such options. An ISO granted to a prospective employee upon the condition
that such person becomes an employee shall be deemed granted effective on the date such person commences employment. The exercise price
of an ISO shall not be less than 100% of the fair market value of the shares covered by the awards on the date of grant of such option
pursuant to the Internal Revenue Code of 1986, as amended from time to time (the “Code”). Notwithstanding the foregoing,
an ISO may be granted with an exercise price lower than the minimum exercise price set forth above if such award is granted pursuant
to an assumption or substitution for another option in a manner that complies with the provisions of Section 424(a) of the Code. Notwithstanding
any other provision of the 2022 Incentive Plan to the contrary, no ISO may be granted under the 2022 Incentive Plan after 10 years from
the date that the 2022 Incentive Plan was adopted. No ISO shall be exercisable after the expiration of 10 years after the effective date
of grant of such award, subject to the following sentence. In the case of an ISO granted to a ten percent stockholder, (i) the exercise
price shall not be less than 110% of the fair market value of a share on the date of grant of such ISO, and (ii) the exercise period
shall not exceed 5 years from the effective date of grant of such ISO. Equity appreciation rights will entitle the holder to receive
a payment (in cash or in shares) based on the appreciation in the fair market value of the shares subject to the award up to a specified
date or dates. Equity appreciation rights may be granted to the holders of any stock options granted under the 2022 Equity Incentive
Plan or may be granted independently of and without relation to stock options.
Restricted
Stock and Restricted Stock Units. The committee may award restricted stock and RSUs under the 2022 Incentive Plan. Restricted
stock awards consist of shares of stock that are transferred to the participant subject to restrictions that may result in forfeiture
if specified vesting conditions are not satisfied. RSU awards result in the transfer of shares of stock to the participant only after
specified vesting conditions are satisfied. A holder of restricted stock is treated as a current shareholder and shall be entitled to
dividend and voting rights, whereas the holder of a restricted stock unit is treated as a shareholder with respect to the award only
when the shares are delivered in the future. Specified vesting conditions may include performance goals to be achieved during any performance
period and the length of the performance period. The committee may, in its discretion, make adjustments to performance goals based on
certain changes in the Company’s business operations, corporate or capital structure or other circumstances. When the participant
satisfies the conditions of an RSU award, the Company may settle the award (including any related dividend equivalent rights) in shares,
cash or other property, as determined by the committee, in its sole discretion.
Other
Shares or Share-Based Awards. The committee may grant other forms of equity-based or equity-related awards other than stock options,
equity appreciation rights, restricted stock or restricted stock units. The terms and conditions of each stock-based award shall be determined
by the committee.
Sale
of the Company. Awards granted under the 2022 Incentive Plan do not automatically accelerate and vest, become exercisable (with
respect to stock options), or have performance targets deemed earned at target level if there is a sale of the Company. The Company does
not use a “liberal” definition of change in control as defined in Institutional Shareholder Services’ proxy voting
guidelines. The 2022 Incentive Plan provides flexibility to the committee to determine how to adjust awards at the time of a sale of
the Company.
Transferability
of Awards. Except as described below, awards under the 2022 Incentive Plan generally are not transferable by the recipient other
than by will or the laws of descent and distribution. Any amounts payable or shares issuable pursuant to an award generally will be paid
only to the recipient or the recipient’s beneficiary or representative. The committee has discretion, however, to permit certain
transfer of awards to other persons or entities.
Adjustments.
As is customary in incentive plans of this nature, each share limit and the number and kind of shares available under the 2022
Incentive Plan and any outstanding awards, as well as the exercise price or base price of awards, and performance targets under certain
types of performance-based awards, are subject to adjustment in the event of certain reorganizations, mergers, combinations, recapitalizations,
stock splits, stock dividends, or other similar events that change the number or kind of shares outstanding, and extraordinary dividends
or distributions of property to the stockholders.
Amendment
and Termination. The board of directors may amend, modify or terminate the 2022 Incentive Plan without stockholder approval,
except that stockholder approval must be obtained for any amendment that, in the reasonable opinion of the board or the committee, constitute
a material change requiring stockholder approval under applicable laws, policies or regulations or the applicable listing or other requirements
of a stock exchange on which shares of Common Stock are then listed. The 2022 Incentive Plan will terminate upon the earliest of (1)
termination of the 2022 Incentive Plan by the board of directors, or (2) the tenth anniversary of the board adoption of the 2022 Incentive
Plan. Awards outstanding upon expiration of the 2022 Incentive Plan shall remain in effect until they have been exercised or terminated,
or have expired.
Director
Compensation
The
following table provides information for the compensation of our non-employee directors for the fiscal year ended October 31, 2023:
| Name | |
Fees earned or paid in cash ($) | | |
Stock Awards ($) | | |
Total
($) | |
| John Randall | |
| 31,538 | | |
| — | | |
| 31,538 | |
| Thomas J. Pernice | |
| 31,538 | | |
| — | | |
| 31,538 | |
| William J. Hunter | |
| 31,538 | | |
| — | | |
| 31,538 | |
The material terms of the non-employee director compensation program
are summarized below.
The
non-employee director compensation provides for annual retainer fees and/or long-term equity awards for our non-employee directors.
We expect each non-employee director will receive an annual retainer of $50,000 plus an additional $10,000 for each board committee that
he or she is on.
Compensation
under our non-employee director compensation policy will be subject to the annual limits on non-employee director compensation set forth
in the 2022 Incentive Plan, as described above, but such limits will not apply prior to the first calendar year following the calendar
year in which our initial public offering was completed. Our board of directors or its authorized committee may modify the non-employee
director compensation program from time to time in the exercise of its business judgment, taking into account such factors, circumstances
and considerations as it shall deem relevant from time to time, subject to the annual limit on non-employee director compensation set
forth in the 2022 Incentive Plan. As provided in the 2022 Incentive Plan, our board of directors or its authorized committee may make
exceptions to this limit for individual non-employee directors in extraordinary circumstances, as the board of directors or its authorized
committee may determine in its discretion.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The
following includes a summary of transactions since July 19, 2021 (inception) to which we have been a party in which the amount involved
will exceed $120,000, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of
our capital stock, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material
interest, other than equity and other compensation, termination, change in control and other arrangements, which are described under
“Executive and Director Compensation.” We also describe below certain other transactions with our directors, executive officers
and stockholders.
Related
Party Transactions
South
Salinas Project Purchase
Initial
Purchase and Sale Agreement
On
September 14, 2021, we entered into a purchase and sale agreement where we acquired Trio LLC’s approximate 82.75% WI in the South
Salinas Project for consideration of $4 million and 4,900,000 shares of our Common Stock.
Fourth
Amendment to the Purchase and Sale Agreement
On
December 22, 2022, we entered into the Fourth Amendment where we acquired a subsequent additional approximate 3% WI in the South Salinas
Project from Trio LLC for $60,529.40. In addition, the Fourth Amendment granted us a 120-day option to acquire the Optioned Assets. The
Option Fee is $150,000, which was paid by the Company to Trio LLC. The Optioned Assets are as follows:
| |
● |
The Hangman Hollow Field
asset with an option to acquire Trio LLC’s 44% working interest and their Operatorship; |
| |
● |
The Kern Front Field asset
with an option to acquire Trio LLC’s 22% working interest and their Operatorship; and |
| |
● |
The Union Avenue Field
with an option to acquire Trio LLC’s 20% working interest and their Operatorship; |
On
May 12, 2023, subsequent to the 120-day option window referenced above, the Company announced the signing of an Acquisition Agreement
to potentially acquire up to 100% of the working interest in the Union Avenue Field. The Agreement is between the Company and Trio LLC,
on behalf of itself as Operator and holding a 20% working interest in Union Avenue Field as well as to facilitate the remaining 80% working
interest holders. As Trio LLC is partly owned and controlled by members of Trio’s management, this would be a related party transaction,
and a special committee of Trio’s board of directors (the “Trio Special Committee”) has been formed to evaluate and
negotiate the terms of this acquisition.
Trio
has engaged KLSP to conduct a comprehensive analysis and valuation of the asset, which analysis has been delivered to the Company and
is being evaluated by the Trio Special Committee.
Under
the Fourth Amendment, we also agreed to start the process of pursuing and consummating additional lease acquisitions in the areas deemed
by the parties to be higher priority areas lying within and around the South Salinas Project Area. Such acquisitions shall be for an
aggregate purchase price not to exceed approximately $79,000.00. Some leases were acquired in February and March, 2023, as described
more-fully elsewhere hereunder.
Further
under the Fourth Amendment, we agreed to engage the services of a contractor to do road access work and dirt-moving work (estimated to
cost approximately $170,000.00) that was necessary before the commencement of drilling the HV-1 well. We also agreed to pay a deposit
(in an amount not to exceed $25,000) to secure a drilling rig to drill the HV-1 well, which was drilled in May, 2023. This deposit was
not required and was not paid.
Finally,
we agreed, retroactively commencing on May 1, 2022, to accrue a monthly consulting fee of $35,000.00, due and payable by the Company
to Trio LLC no later than two weeks following the closing date of Company’s IPO. This fee is intended to cover the work being done
for the Company by Trio LLC’s employees prior to the closing date of our IPO.
Stan
Eschner and Steven Rowlee, members of our management team, are employed by Trio LLC. Terry Eschner, also a member of our management
team, commonly works as a consultant to Trio LLC through his company Sarlan Resources, Inc.
Indemnification
Agreements
We
intend to enter into indemnification agreements with each of our directors and executive officers. These agreements, among other things,
require us or will require us to indemnify each director and executive officer to the fullest extent permitted under the NRS, including
indemnification of expenses such as attorneys’ fees, judgments, fines and settlement amounts incurred by the director or executive
officer in any action or proceeding, including any action or proceeding by or in right of us, arising out of the person’s services
as a director or executive officer. For further information, see “Description of Our Securities—Limitations on Liability
and Indemnification Matters.”
PRINCIPAL
STOCKHOLDERS
The
following table sets forth information with respect to the beneficial ownership of our Common Stock, as of December 5, 2023 by:
| |
● |
each
person, or group of affiliated persons, known by us to beneficially own more than 5% of our outstanding shares of Common Stock (other
than named executive officers and directors); |
| |
|
|
| |
● |
each
of our named executive officers; |
| |
|
|
| |
● |
each
of our directors; |
| |
|
|
| |
● |
all
of our executive officers and directors as a group; |
The
number of shares beneficially owned by each stockholder is determined in accordance with the rules issued by the SEC, and the information
is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes any shares
as to which the individual or entity has sole or shared voting power or investment power, which includes the power to dispose of or to
direct the disposition of such security. Except as indicated in the footnotes below, we believe, based on the information furnished to
us, that the individuals and entities named in the table below have sole voting and investment power with respect to all shares of Common
Stock beneficially owned by them, subject to any community property laws.
Percentage
ownership of our Common Stock is based on 30,794,720 shares of Common Stock outstanding as of December 5, 2023. In computing
the number of shares beneficially owned by an individual or entity and the percentage ownership of that person, shares of Common Stock
subject to options, restricted units, warrants or other rights held by such person that are currently exercisable or will become exercisable
within 60 days of December 5, 2023 are considered outstanding, although these shares are not considered outstanding for purposes
of computing the percentage ownership of any other person.
To
calculate a stockholder’s percentage of beneficial ownership of Common Stock, we must include in the numerator and denominator
those shares of Common Stock, as well as those shares of Common Stock underlying options, warrants and convertible securities, that such
stockholder is considered to beneficially own. Shares of Common Stock underlying options, warrants and convertible securities, held by
other stockholders, however, are disregarded in this calculation. Therefore, the denominator used in calculating beneficial ownership
of each of the stockholders may be different.
Unless
otherwise indicated, the address of each beneficial owner listed below is c/o Trio Petroleum Corp., 5401 Business Park, Suite 115 Bakersfield,
CA 93309. To our knowledge, there is no arrangement, including any pledge by any person of securities of the Company, the operation of
which may at a subsequent date result in a change in control of the Company.
| | |
Beneficial Ownership of Common Stock | |
| Name of Beneficial Owner | |
Shares | | |
% | |
| 5% Stockholders: | |
| | | |
| | |
| Primal Nutrition, Inc. (1) | |
| 2,902,936 | | |
| 9.21 | % |
| | |
| | | |
| | |
| Named Executive Officers and Directors: | |
| | | |
| | |
| Frank C. Ingriselli (2) | |
| 1,377,000 | | |
| 4.47 | % |
| Terry Eschner | |
| 650,000 | | |
| 2.11 | % |
| Steven Rowlee (3) | |
| 650,000 | | |
| 2.11 | % |
| Stan Eschner (4) | |
| 1,150,000 | | |
| 3.73 | % |
| Greg Overholtzer | |
| 100,000 | | |
| * | |
| Michael L. Peterson | |
| 1,185,000 | | |
| 3.85 | % |
| William J. Hunter | |
| 310,000 | | |
| 1.01 | % |
| John Randall | |
| 160,000 | | |
| * | |
| Thomas J. Pernice | |
| 240,000 | | |
| * | |
| All directors and executive officers as a group (9 persons) | |
| 5,822,000 | | |
| 18.91 | % |
*
Less than 1%
| (1) |
Consists
of (1) 2,203,089 shares of Common Stock, (2) 559,878 shares of Common Stock issuable upon exercise of the Common Warrants, and (3)
150,000 shares of Common Stock issuable upon exercise of the Pre-Funded Warrants exercisable within 60 days of December 5,
2023. Primal Nutrition, Inc. is a Delaware corporation for which Mark Sisson holds investment and voting control. The address of
Primal Nutrition Inc. is 100 S. Pointe Drive, #1106, Miami Beach, FL 33139. |
| |
|
| (2) |
Consists
of (1) 280,000 shares held by Global Venture Investments LLC, for which Mr. Ingriselli holds 100% of the membership interest; the
address of Global Venture Investments LLC is 4115 Blackhawk Plaza Circle, Suite 100, Danville, CA 94506, (2) 47,000 shares held by
the Brightening Lives Foundation Inc. for which Mr. Ingriselli is the Chief Executive Officer and holds investment and voting control;
the address of Brightening Lives Foundation Inc is 9000 Crow Canyon Road, Suite 362, Danville, CA 94506 and (3) 150,000 shares
held by Sung Jin Ingriselli which is the spouse of Mr. Ingriselli. The address of Ms. Ingriselli is 34 Magnolia Place, Danville CA
94506. Mr. Ingriselli may be deemed to have beneficial ownership of these shares. |
| |
|
| (3) |
Consists of 500,000 shares
held by the DLASY Trust, a trust for which Mr. Rowlee holds investment and voting control over. The address of the DLASY Trust is
13601 Powder River Avenue, Bakersfield, CA 93314. |
| |
|
| (4) |
Consists of (i) 500,000
shares held by the Stanford Eschner Trust No. 1, for which Mr. Eschner holds investment and voting control over; the address of the
Stanford Eschner Trust No. 1 is 6501 Kane Way, Bakersfield, CA 93309, and (ii) 500,000 shares held by Trio LLC, a California
Limited Liability Company, for which Stan Eschner serves as the Executive Chairman, and as such may be deemed to hold investment
and voting control over Trio LLC’s shares; the address of Trio LLC is 5401 Business Park, Suite 115 Bakersfield,
CA 93309. |
DESCRIPTION
OF OUR SECURITIES
The
following description summarizes important terms of our capital stock and certain provisions of our amended and restated certificate
of incorporation and amended and restated bylaws. Copies of these documents will be filed with the SEC as exhibits to our registration
statement, of which this prospectus forms a part.
General
Our
authorized capital stock consists of 490,000,000 shares of Common Stock, par value $0.0001 per share and 10,000,000 shares of preferred
stock, par value $0.0001 per share. As of December 5, 2023, there were 30,794,720 shares of our Common Stock, held by approximately
46 stockholders of record. No shares of our preferred stock are designated, issued or outstanding.
Common
Stock
All
shares of Common Stock of the Company are one and the same class, identical in all respects and have equal rights, powers and privileges.
Common
Warrant
Duration
and Exercise Price
The
Common Warrant has an initial exercise price of $1.20 per share. The Common Warrant was immediately exercisable upon issuance and is
exercisable for five years after the date of issuance. The exercise price and number of shares of Common Stock issuable upon exercise
are subject to appropriate adjustment in the event of share dividends, share splits, reorganizations or similar events affecting our
shares of Common Stock. Except for certain exceptions, the exercise price is also subject to adjustment in the event of subsequent equity
sales by the Company at a price less than the then current exercise price of the Common Warrant.
Exercisability
The
Common Warrant is exercisable, at the option of the holder, in whole or in part, by delivering to us a duly executed exercise notice
accompanied by payment in full for the number of shares of Common Stock purchased upon such exercise (except in the case of a cashless
exercise as discussed below). The holder (together with its affiliates) may not exercise any portion of the holder’s Common Warrant
to the extent that the holder would own more than 4.99% (or, at the election of the holder, 9.99%) of our outstanding shares of Common
Stock immediately after exercise, except that upon at least 61 days’ prior notice from the holder to us, the holder may increase
the amount of ownership of outstanding shares of Common Stock after exercising the holder’s Common Warrant up to 9.99% of the number
of shares of Common Stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in
accordance with the terms of the Common Warrant.
Cashless
Exercise
In
lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price,
the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of shares of Common Stock determined
according to a formula set forth in the Common Warrant.
Fundamental
Transactions
In
the event of any fundamental transaction, as described in the Common Warrant and generally including any merger with or into another
entity, sale of all or substantially all of our assets, tender offer or exchange offer, or reclassification of our shares of Common Stock,
then upon any subsequent exercise of a Common Warrant, the holder will have the right to receive as alternative consideration, for each
share of Common Stock that would have been issuable upon such exercise immediately prior to the occurrence of such fundamental transaction,
the number of shares of Common Stock of the successor or acquiring corporation or of our Company, if it is the surviving corporation,
and any additional consideration receivable upon or as a result of such transaction by a holder of the number of shares of Common Stock
for which the Common Warrant is exercisable immediately prior to such event
Transferability
In
accordance with its terms and subject to applicable laws, the Common Warrant may be transferred at the option of the holder upon surrender
of the Common Warrant to us together with the appropriate instruments of transfer and payment of funds sufficient to pay any transfer
taxes (if applicable).
Fractional
Shares
No
fractional shares of Common Stock will be issued upon the exercise of the Common Warrant. Rather, the number of shares of Common Stock
to be issued will, at our election, either be rounded down to the nearest whole number or we will pay a cash adjustment in respect of
such final fraction in an amount equal to such fraction multiplied by the exercise price.
Trading
Market
There
is no established trading market for the Common Warrants, and we do not expect a market to develop. We do not intend to apply for a listing
for the Common Warrants on any securities exchange or other nationally recognized trading system. Without an active trading market, the
liquidity of the Common Warrant will be limited.
Rights
as a Shareholder
Except
as otherwise provided in the Common Warrants or by virtue of the holders’ ownership of shares of Common Stock, the holders of Common
Warrants do not have the rights or privileges of holders of our shares of Common Stock, including any voting rights, until such Common
Warrant holders exercise their warrants.
Placement
Agent Warrant
Duration
and Exercise Price
The
Placement Agent Warrant has an initial exercise price of $1.32 per share. The Placement Agent Warrant will be first exercisable 180 days
after the date of issuance and is exercisable for five years after the date of issuance. The exercise price and number of shares of Common
Stock issuable upon exercise are subject to appropriate adjustment in the event of share dividends, share splits, reorganizations or
similar events affecting our shares of Common Stock.
Exercisability
The
Placement Agent Warrant is exercisable, at the option of the holder, in whole or in part, by delivering to us a duly executed exercise
notice accompanied by payment in full for the number of shares of Common Stock purchased upon such exercise (except in the case of a
cashless exercise as discussed below). The holder (together with its affiliates) may not exercise any portion of the holder’s Placement
Agent Warrant to the extent that the holder would own more than 4.99% (or, at the election of the holder, 9.99%) of our outstanding shares
of Common Stock immediately after exercise, except that upon at least 61 days’ prior notice from the holder to us, the holder may
increase the amount of ownership of outstanding shares of Common Stock after exercising the holder’s Placement Agent Warrant up
to 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to the exercise, as such percentage ownership
is determined in accordance with the terms of the Placement Agent Warrant.
Cashless
Exercise
In
lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price,
the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of shares of Common Stock determined
according to a formula set forth in the Placement Agent Warrant.
Transferability
In
accordance with its terms and subject to applicable laws, the Placement Agent Warrant may be transferred at the option of the holder
upon surrender of the Placement Agent Warrant to us together with the appropriate instruments of transfer and payment of funds sufficient
to pay any transfer taxes (if applicable).
Fractional
Shares
No
fractional shares of Common Stock will be issued upon the exercise of the Common Warrant. Rather, the number of shares of Common Stock
to be issued will, at our election, either be rounded up or down to the nearest whole number.
Registration
Rights
Subject
to certain exceptions, the Placement Agent Warrant provides for one demand registration and unlimited piggy-back registration rights.
Trading
Market
There
is no established trading market for the Common Warrants, and we do not expect a market to develop. We do not intend to apply for a listing
for the Common Warrants on any securities exchange or other nationally recognized trading system. Without an active trading market, the
liquidity of the Common Warrant will be limited.
Rights
as a Shareholder
Except
as otherwise provided in the Common Warrants or by virtue of the holders’ ownership of shares of Common Stock, the holders of Common
Warrants do not have the rights or privileges of holders of our shares of Common Stock, including any voting rights, until such Common
Warrant holders exercise their warrants.
Voting.
Our certificate of incorporation does not provide for cumulative voting for the election of directors. As a result, the holders
of a majority of the voting power of our outstanding capital stock can elect all of the directors then standing for election. Our certificate
of incorporation establishes a classified board of directors, to be divided into three classes with staggered three-year terms. Only
one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder
of their respective three-year terms. An election of directors by our stockholders shall be determined by a plurality of the votes cast
by the stockholders entitled to vote on the election. Subject to the supermajority votes for some matters, other matters shall be decided
by the affirmative vote of our stockholders having a majority in voting power of the votes cast by the stockholders present or represented
and voting on such matter. Our certificate of incorporation and bylaws also provide that our directors may be removed only for cause
and only by the affirmative vote of the holders of at least two-thirds in voting power of the outstanding shares of capital stock entitled
to vote thereon. In addition, the affirmative vote of the holders of at least two-thirds in voting power of the outstanding shares of
capital stock entitled to vote thereon will be required to amend or repeal, or to adopt any provision inconsistent with, several of the
provisions of our certificate of incorporation. See below under “—Anti-Takeover Provisions—Amendment of Charter Provisions”
below.
Dividends.
Subject to the rights and preferences of any holders of any outstanding series of preferred stock that we may designate and issue
in the future, the holders of our Common Stock are entitled to receive proportionately any dividends as may be declared by our board
of directors.
Liquidation.
On our liquidation, dissolution, or winding-up, the holders of Common Stock will be entitled to receive proportionately our net
assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights
of any outstanding preferred stock.
Rights
and Preferences. Holders of our Common Stock will have no preemptive, conversion or subscription rights, and there will be no
redemption or sinking funds provisions applicable to our Common Stock. The rights, preferences and privileges of the holders of our Common
Stock will be subject to, and may be adversely affected by, the rights of the holders of share of any series of our preferred stock that
we may designate and issue in the future.
Fully
Paid and Nonassessable. All of our outstanding shares of Common Stock are fully paid and nonassessable.
Preferred
Stock
Under
our amended and restated certificate of incorporation our board of directors is authorized to direct us to issue shares of preferred
stock in one or more series without stockholder approval. Our board of directors has the discretion to determine the rights, preferences,
privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences,
of each series of preferred stock.
The
purpose of authorizing our board of directors to issue preferred stock and determine its rights and preferences is to eliminate delays
associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing flexibility in connection
with possible acquisitions, future financings and other corporate purposes, could have the effect of making it more difficult for a third-party
to acquire, or could discourage a third-party from seeking to acquire, a majority of our outstanding voting stock. There are no shares
of preferred stock outstanding, and we have no present plans to issue any shares of preferred stock.
Senior
Secured Convertible Promissory Note
Principal
and Maturity
The
Senior Secured Convertible Promissory Note (the “Note”) was issued in the principal amount of $2,000,000 with gross proceeds
of $1,860,000 a 7% Original Issue Discount (“OID”) of $140,000. The Note is initially convertible into shares of Common Stock
at conversion price of $1.20, subject to certain adjustments (the “Conversion Price”), provided that the Conversion Price
shall not be reduced below $0.35 (the “Floor Price”). The Note does not bear any interest and matures on April 4, 2025.
Payment
of the Outstanding Principal Amount
Commencing
on the earlier of (i) the day that is the four months after October 4, 2023 and (ii) the date on which the Registration Statement is
declared effective by the SEC, the Company is required to pay to the holder the outstanding principal balance under the Note in monthly
installments, on such date and each one (1) month anniversary thereof, in an amount equal to 103% of the total principal amount multiplied
by the quotient determined by dividing one by the number of months remaining until the maturity date of the Note, until the outstanding
principal amount has been paid in full or, if earlier, upon acceleration, conversion or redemption of the Note in accordance with its
terms. All monthly payments are payable the Company, in cash, provided that under certain circumstances, as provided in the Note, the
Company may elect to pay in shares of Common Stock.
Prepayment
The
Company may repay any portion of the outstanding principal amount of the Note, subject to a 10% premium; provided that (i) the Equity
Conditions (as such term is defined in the Note) are then met, (ii) the closing price of the Common Stock on the trading day prior to
the date that a prepayment notice is provided by the Company is below the Conversion Price, and (iii) the Registration Statement has
been declared effective. If the Company elects to prepay the Note, the holder has the right to convert all of the principal amount of
the Note at the applicable Conversion Price into shares Common Stock.
If
the Company directly or indirectly receives proceeds from and closes any kind of financing including through the issuance of any equity
or debt securities, the holder may request a prepayment of the principal amount of the Note and any accrued and unpaid interest thereon
(if any) in an amount up to 30% of the gross proceeds received by the Company, which amount shall increase to 50% of the gross proceeds
received by the Company under an “at the market” offering.
Within
15 days after receipt of a written notice from the Company of a Change of Control (as such term is defined in the Note), the holder may
require the Company to prepay the Note, in an amount equal to 120% of the sum of (i) the outstanding principal balance of the Note and
(ii) and any accrued and unpaid interest thereon (if any).
Beneficial
Ownership Limitation
The
Note may not be converted to the extent that the holder would own more than 4.99% (or, at the election of the holder, 9.99%) of our outstanding
shares of Common Stock immediately after conversion, except that upon at least 61 days’ prior notice from the holder to us, the
holder may increase the amount of ownership of outstanding shares of Common Stock after converting the Note up to 9.99% of the number
of shares of Common Stock outstanding immediately after giving effect to the conversion, as such percentage ownership is determined in
accordance with the terms of the Note.
Events
of Default
Upon
the occurrence of any Event of Default (as defined in the Note), interest shall accrue on the Note at a rate equal to 10% per annum or,
if less, the highest amount permitted by law. In addition, upon the occurrence of Event of Default, which has not been cured within any
applicable cure period, interest is also payable at the “Mandatory Default Amount” (i.e. 120% of the sum of (i) the outstanding
principal balance of the Note on the date on which the first Event of Default has occurred and (ii) any accrued and unpaid interest thereon.
Furthermore, if an Event of Default in not cured, the Investor also shall have the right to convert the Mandatory Default Amount, upon
the terms provided in the Note.
Security
As
collateral for the obligations under the October 2023 SPA and the Note, the Company has granted to the holder a senior security interest
in all of the Company’s assets (inclusive of intellectual property), subject to certain exceptions, as set forth in the Security
Agreement (as defined in the October 2023 SPA). The Company has also entered into a Mortgage, Deed of Trust, Assignment of Production,
Security Agreement and Financing Statement (the “Deed of Trust”) with the Investor granting to the Investor a security interest
in certain oil and gas interests held by the Company in California (the “Deed of Trust”).
Anti-Takeover
Provisions
Some
provisions of Delaware law and our amended and restated certificate of incorporation and our amended and restated bylaws make the following
transactions more difficult: an acquisition of us by means of a tender offer; an acquisition of us by means of a proxy contest or otherwise;
or the removal of our incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish
or could deter transactions that stockholders may otherwise consider to be in their best interests or in our best interests, including
transactions that provide for payment of a premium over the market price for our shares.
These
provisions, summarized below, are intended to discourage coercive takeover practices and inadequate takeover bids. These provisions are
also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the
benefits of the increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal
to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these proposals could
result in an improvement of their terms.
Undesignated
Preferred Stock. The ability of our board of directors, without action by our stockholders, to issue up to shares of undesignated
preferred stock with voting or other rights or preferences as designated by our board of directors could impede the success of any attempt
to effect a change in control of our company. These and other provisions may have the effect of deferring hostile takeovers or delaying
changes in control or management of our company.
Stockholder
Meetings. Our amended and restated certificate of incorporation provides that a special meeting of stockholders may be called only
by a resolution adopted by a majority of our board of directors.
Requirements
for Advance Notification of Stockholder Nominations and Proposals. Our amended and restated bylaws establish advance notice procedures
with respect to stockholder proposals to be brought before a stockholder meeting and the nomination of candidates for election as directors,
other than nominations made by or at the direction of our board of directors of a committee of our board of directors.
Elimination
of Stockholder Action by Written Consent. Any action to be taken by our stockholders must be effected at a duly called annual or
special meeting of stockholders and may not be taken by written consent.
Staggered
Board. Our board of directors will be divided into three classes. The directors in each class will serve a three-year term, with
one class being elected each year by our stockholders. For more information on our classified board, see “Management—Classified
Board of Directors.” This system of electing and removing directors may tend to discourage a third party from making a tender offer
or otherwise attempting to obtain control of us, because it generally makes it more difficult for stockholders to replace a majority
of the directors.
Removal
of Directors. Our amended and restated certificate of incorporation provides that no member of our board of directors may be removed
from office by our stockholders except for cause and, in addition to any other vote required by law, upon the approval of the holders
of at least two-thirds in voting power of the outstanding shares of stock entitled to vote in the election of directors.
Stockholders
Not Entitled to Cumulative Voting. Our amended and restated certificate of incorporation will not permit stockholders to cumulate
their votes in the election of directors. Accordingly, the holders of a majority of the outstanding shares of our Common Stock entitled
to vote in any election of directors will be able to elect all of the directors standing for election, if they choose.
Choice
of Forum. Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an
alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (1) any derivative action
or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty or other wrongdoing by any of our
directors, officers, employees or agents to us or our stockholders, (3) any action asserting a claim against us arising pursuant to any
provision of the “DGCL or our amended and restated certificate of incorporation or amended and restated bylaws, (4) any action
to interpret, apply, enforce or determine the validity of our amended and restated certificate of incorporation or amended and restated
bylaws, or (5) any action asserting a claim governed by the internal affairs doctrine. Under our amended and restated certificate of
incorporation, this exclusive form provision will not apply to claims which are vested in the exclusive jurisdiction of a court or forum
other than the Court of Chancery of the State of Delaware, or for which the Court of Chancery of the State of Delaware does not have
subject matter jurisdiction. For instance, the exclusive forum provision in our amended and restated certificate of incorporation would
not apply to actions arising under federal securities laws, including suits brought to enforce any liability or duty created by the Securities
Act, the Exchange Act, or the rules and regulations thereunder. In addition, our amended and restated certificate of incorporation provides
that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America
shall, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint asserting a cause
of action arising under the Securities Act, or the rules and regulations promulgated thereunder. We note, however, that there is uncertainty
as to whether a court would enforce this provision and that investors cannot waive compliance with the federal securities laws and the
rules and regulations thereunder. Section 22 of the Securities Act creates concurrent jurisdiction for state and federal courts over
all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
Our
amended and restated certificate of incorporation provides that any person or entity holding, purchasing or otherwise acquiring any interest
in shares of our capital stock will be deemed to have notice of and to have consented to this choice of forum provision. It is possible
that a court of law could rule that the choice of forum provision contained in our amended and restated certificate of incorporation
is inapplicable or unenforceable if it is challenged in a proceeding or otherwise.
Amendment
of Charter Provisions. The amendment of any of the above provisions, except for the provision making it possible for our board of
directors to issue preferred stock and the provision prohibiting cumulative voting, would require approval by holders of at least two-thirds
in voting power of the outstanding shares of stock entitled to vote thereon.
The
provisions of Delaware law, and our amended and restated certificate of incorporation and amended and restated bylaws could have the
effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in
the market price of our Common Stock that often result from actual or rumored hostile takeover attempts. These provisions may also have
the effect of preventing changes in the composition of our board and management. It is possible that these provisions could make it more
difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.
Section
203 of the Delaware General Corporation Law. We are subject to Section 203 of the DGCL, which prohibits persons deemed to be “interested
stockholders” from engaging in a “business combination” with a publicly held Delaware corporation for three years following
the date these persons become interested stockholders unless the business combination is, or the transaction in which the person became
an interested stockholder was, approved in a prescribed manner or another prescribed exception applies. Generally, an “interested
stockholder” is a person who, together with affiliates and associates, owns, or within three years prior to the determination of
interested stockholder status did own, 15% or more of a corporation’s voting stock. Generally, a “business combination”
includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. The existence
of this provision may have an anti-takeover effect with respect to transactions not approved in advance by our board of directors.
Limitations
on Liability and Indemnification Matters
Our
amended and restated certificate of incorporation limits our directors’ liability to the fullest extent permitted under Delaware
law, which prohibits our amended and restated certificate of incorporation from limiting the liability of our directors for the following:
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any
breach of the director’s duty of loyalty to us or our stockholders; |
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acts
or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; |
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unlawful
payment of dividends or unlawful stock repurchases or redemptions; or |
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any
transaction from which the director derived an improper personal benefit. |
If
Delaware law is amended to authorize corporate action further eliminating or limiting the personal liability of a director, then the
liability of our directors will be eliminated or limited to the fullest extent permitted by Delaware law, as so amended.
Our
amended and restated bylaws provide that we will indemnify our directors and officers to the fullest extent permitted under Delaware
law and that we shall have the power to indemnify our employees and agents to the fullest extent permitted by law. Our amended and restated
bylaws will also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising
out of his or her actions in this capacity, regardless of whether we would have the power to indemnify such person against such expense,
liability or loss under the DGCL.
We
also entered into separate indemnification agreements with our directors and executive officers, in addition to indemnification provided
for in our amended and restated bylaws. These agreements, among other things, provide for indemnification of our directors and executive
officers for expenses, judgments, fines and settlement amounts incurred by such persons in any action or proceeding arising out of this
person’s services as a director or executive officer or at our request. We believe that these provisions in our amended and restated
certificate of incorporation and amended and restated bylaws and indemnification agreements are necessary to attract and retain qualified
persons as directors and executive officers.
The
above description of the limitation of liability and indemnification provisions of our amended and restated certificate of incorporation,
our amended and restated bylaws and our indemnification agreements is not complete and is qualified in its entirety by reference to these
documents, each of which will be filed as an exhibit to this registration statement to which this prospectus forms a part.
The
limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated
bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duties. They may also
reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us
and our stockholders. A stockholder’s investment may be harmed to the extent we pay the costs of settlement and damage awards against
directors and officers pursuant to these indemnification provisions.
Insofar
as indemnification for liabilities under the Securities Act may be permitted to directors, officers or persons controlling us pursuant
to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable. There is no pending litigation or proceeding naming any of our directors or officers
as to which indemnification is being sought, nor are we aware of any pending or threatened litigation that may result in claims for indemnification
by any director or officer.
Listing
Our
Common Stock is listed on the NYSE American (“NYSE American”) under the symbol “TPET.”
Transfer
Agent and Registrar
The
transfer agent and registrar for our Common Stock is VStock Transfer, LLC.
MATERIAL
U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OUR COMMON STOCK
The
following discussion is a summary of the material U.S. federal income tax consequences to non-U.S. holders (as defined below) of the
purchase, ownership and disposition of our Common Stock issued pursuant to this offering, but does not purport to be a complete and comprehensive
analysis of all potential tax consequences resulting from the purchase, ownership and disposition of our Common Stock issued pursuant
to this offering. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or foreign
tax laws are not addressed herein. This discussion is based on the Code, Treasury Regulations promulgated thereunder, judicial decisions,
and published rulings and administrative pronouncements of the U.S. Internal Revenue Service (the “IRS”), in each case in
effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation
may be applied retroactively in a manner that could adversely affect a non-U.S. holder of our Common Stock. We have not sought and will
not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a
contrary position to that discussed below regarding the tax consequences of the purchase, ownership and disposition of our Common Stock.
This
discussion is limited to non-U.S. holders that hold our Common Stock as a “capital asset” within the meaning of Section 1221
of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant
to a non-U.S. holder’s particular circumstances, including the impact of the alternative minimum tax or the impact of the Medicare
contribution tax on net investment income. In addition, it does not address consequences relevant to non-U.S. holders subject to special
rules, including, without limitation:
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U.S.
expatriates and certain former citizens or long-term residents of the United States; |
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persons
holding our Common Stock as part of a hedge, straddle or other risk reduction strategy or as part of a conversion transaction or
other integrated investment; |
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banks,
insurance companies, and other financial institutions; |
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brokers,
dealers or traders in securities or currencies; |
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persons
that hold more than 5% of our Common Stock, directly or indirectly; |
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“controlled
foreign corporations,” “passive foreign investment companies,” and corporations that accumulate earnings to avoid
U.S. federal income tax; |
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corporations
organized outside of the United States, any state thereof or the District of Columbia that are nonetheless treated as U.S. taxpayers
for U.S. federal income tax purposes; |
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partnerships
or other entities or arrangements treated as partnerships for U.S. federal income tax purposes (and investors therein); |
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tax-exempt
organizations or governmental organizations; |
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persons
deemed to sell our Common Stock under the constructive sale provisions of the Code; |
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persons
for whom our Common Stock constitutes “qualified small business stock” within the meaning of Section 1202 of the Code;
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persons
who hold or receive our Common Stock pursuant to the exercise of any employee stock option or otherwise as compensation; |
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qualified
foreign pension funds as defined in Section 897(l)(2) of the Code and entities all of the interests of which are held by qualified
foreign pension funds; |
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persons
subject to special tax accounting rules as a result of any item of gross income with respect to our Common Stock being taken into
account in an applicable financial statement; and |
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tax-qualified
retirement plans. |
If
a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) holds our Common Stock, the tax treatment
of a partner (or person or entity treated as a partner) will generally depend on the status of the partner, the activities of the partnership
and certain determinations made at the partner level. Accordingly, partnerships holding our Common Stock and the partners in such partnerships
should consult their tax advisors regarding the United States federal income tax consequences to them.
THIS
DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INTENDED AS LEGAL OR TAX ADVICE AND DOES NOT SERVE AS A SUBSTITUTE FOR CAREFUL
TAX PLANNING. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR
PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK ARISING UNDER THE
U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME
TAX TREATY.
Definition
of a Non-U.S. Holder
For
purposes of this discussion, a “non-U.S. holder” is any beneficial owner of our Common Stock that is neither a “U.S.
person,” nor an entity treated as a partnership for U.S. federal income tax purposes regardless of its place of organization or
formation. A U.S. person is any person that, for U.S. federal income tax purposes, is or is treated as any of the following:
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an
individual who is a citizen or resident of the United States; |
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a
corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of
the United States, any state thereof, or the District of Columbia; |
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an
estate, the income of which is subject to U.S. federal income tax regardless of its source; or |
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a
trust that (1) is subject to the primary supervision of a U.S. court and which has one or more U.S. persons (within the meaning of
Section 7701(a)(30) of the Code) who have the authority to control all substantial decisions of the trust, or (2) has a valid election
in effect under applicable Treasury Regulations to be treated as a U.S. person. |
Distributions
As
described in the section titled “Dividend Policy,” we do not anticipate declaring or paying dividends to holders of our Common
Stock in the foreseeable future. However, if we do make distributions on our Common Stock, such distributions of cash or property on
our Common Stock will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings
and profits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for U.S. federal income tax purposes
will constitute a return of capital and first be applied against and reduce a non-U.S. holder’s adjusted tax basis in its Common
Stock, but not below zero. Any excess will be treated as capital gain and will be treated as described below under “—Sale
or Other Disposition of Common Stock.”
Subject
to the discussion below on effectively connected income, backup withholding and foreign accounts, dividends paid to a non-U.S. holder
of our Common Stock that are not effectively connected with the non-U.S. holder’s conduct of a trade or business within the United
States will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the dividends (or such lower rate specified
by an applicable income tax treaty, provided the non-U.S. holder furnishes a valid, properly complete and executed IRS Form W-8BEN or
W-8BEN-E (or other applicable documentation) certifying qualification for the lower treaty rate and otherwise complies with the requirements
of FATCA (as discussed below). Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under any applicable
income tax treaty.
Non-U.S.
holders may be entitled to a reduction in or an exemption from withholding on dividends as a result of either (a) an applicable income
tax treaty or (b) the non-U.S. holder holding our Common Stock in connection with the conduct of a trade or business within the United
States and dividends being effectively connected with that trade or business. To claim such a reduction in or exemption from withholding,
the non-U.S. holder must provide the applicable withholding agent with a valid, properly completed and executed (a) IRS Form W-8BEN or
W-8BEN-E (or other applicable documentation) claiming an exemption from or reduction of the withholding tax under the benefit of an income
tax treaty between the United States and the country in which the non-U.S. holder resides or is established, or (b) IRS Form W-8ECI stating
that the dividends are not subject to withholding tax because they are effectively connected with the conduct by the non-U.S. holder
of a trade or business within the United States, as may be applicable. These certifications must be provided to the applicable withholding
agent prior to the payment of dividends and must be updated periodically. If a non-U.S. holder holds stock through a financial institution
or other agent acting on the non-U.S. holder’s behalf, the non-U.S. holder will be required to provide appropriate documentation
to such agent. The non-U.S. holder’s agent will then be required to provide certification to us or our paying agent, either directly
or through other intermediaries. Non-U.S. holders that do not timely provide the applicable withholding agent with the required certification,
but that qualify for a reduced rate under an applicable income tax treaty, may obtain a refund of any excess amounts withheld by timely
filing an appropriate claim for refund with the IRS. Special certification and other requirements apply to certain non-U.S. holders that
are pass-through entities (e.g., partnerships) rather than corporations or individuals.
If
dividends paid to a non-U.S. holder are effectively connected with the non-U.S. holder’s conduct of a trade or business within
the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the
United States to which such dividends are attributable), then, although exempt from U.S. federal withholding tax (provided the non-U.S.
holder provides appropriate certification, as described above), the non-U.S. holder will be subject to U.S. federal income tax on such
dividends on a net income basis at the regular U.S. federal income tax rates. In addition, a non-U.S. holder that is a corporation may
be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty, provided the non-U.S.
holder furnishes a valid, properly completed and executed IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) certifying
qualification for the lower treaty rate) on its effectively connected earnings and profits for the taxable year that are attributable
to such dividends, as adjusted for certain items. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits
under any applicable income tax treaty.
Sale
or Other Disposition of Common Stock
Subject
to the discussions below on backup withholding and FATCA, a non-U.S. holder generally will not be subject to U.S. federal income tax
on any gain realized upon the sale or other disposition of our Common Stock unless:
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the
gain is effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States (and, if required
by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such gain
is attributable); |
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the
non-U.S. holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the
disposition and certain other requirements are met; or |
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our
Common Stock constitutes U.S. real property interests (“USRPIs”) by reason of our status as a U.S. real property holding
corporation (“USRPHC”), for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding
such disposition or such non-U.S. holder’s holding period. |
Gain
described in the first bullet point above will generally be subject to U.S. federal income tax on a net income basis at the regular U.S.
federal income tax rates. A non-U.S. holder that is a foreign corporation also may be subject to a branch profits tax at a rate of 30%
(or such lower rate specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain items.
A
non-U.S. holder described in the second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower
rate specified by an applicable income tax treaty) on gain realized upon the sale or other taxable disposition of our Common Stock, which
may be offset by certain U.S. source capital losses of the non-U.S. holder (even though the individual is not considered a resident of
the United States) provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.
With
respect to the third bullet point above, we would be a USRPHC if our USRPIs comprise (by fair market value) at least 50 percent of our
business assets. We believe we currently are not, and do not anticipate becoming, a USRPHC. Because the determination of whether we are
a USRPHC depends, however, on the fair market value of our USRPIs relative to the fair market value of our other business assets and
our non-U.S. real property interests, there can be no assurance we currently are not a USRPHC or will not become one in the future. Even
if we are or were to become a USRPHC, gain arising from the sale or other taxable disposition of our Common Stock by a non-U.S. holder
will not be subject to U.S. federal income tax if our Common Stock is “regularly traded,” as defined by applicable Treasury
Regulations, on an established securities market, and such non-U.S. holder owned, actually and constructively, 5% or less of our Common
Stock throughout the shorter of the five-year period ending on the date of the sale or other taxable disposition or the non-U.S. holder’s
holding period. There can be no assurance that our Common Stock will continue to qualify as regularly traded on an established securities
market. If any gain on your disposition is taxable because we are a USRPHC and your ownership of our Common Stock exceeds 5%, you will
be taxed on such disposition generally in the manner as gain that is effectively connected with the conduct of a U.S. trade or business
(subject to the provisions under an applicable income tax treaty), except that the branch profits tax generally will not apply.
Non-U.S.
holders should consult their tax advisors regarding potentially applicable income tax treaties that may provide for different rules.
Information
Reporting and Backup Withholding
Subject
to the discussion below on FATCA, payments of dividends on our Common Stock will not be subject to backup withholding, provided the applicable
withholding agent does not have actual knowledge or reason to know such holder is a U.S. person and the holder either certifies under
penalties of perjury its non-U.S. status, such as by furnishing a valid, properly completed and executed IRS Form W-8BEN, W-8BEN-E or
W-8ECI, or otherwise establishes an exemption from such withholding. However, information returns are required to be filed with the IRS
in connection with any distributions (including deemed distributions) on our Common Stock paid to the non-U.S. holder, regardless of
whether such distributions constitute dividends or whether any tax was actually withheld. Such information returns generally include
the amount of any such dividends, the name and address of the recipient, and the amount, if any, of tax withheld. A similar report is
sent to the holder to whom any such dividends are paid. In addition, proceeds of the sale or other taxable disposition of our Common
Stock within the United States or conducted through certain U.S.-related brokers generally will not be subject to backup withholding
or information reporting if the applicable withholding agent receives the certification described above and does not have actual knowledge
or reason to know that such holder is a U.S. person or the holder otherwise establishes an exemption. Proceeds of a disposition of our
Common Stock conducted through a non-U.S. office of a non-U.S. broker that does not have certain enumerated relationships with the United
States generally will not be subject to backup withholding or information reporting.
Copies
of information returns that are filed with the IRAS may also be made available under the provisions of an applicable treaty or agreement
to the tax authorities of the country in which the non-U.S. holder resides or is established.
Backup
withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit
against a non-U.S. holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
Additional
Withholding Tax on Payments Made to Foreign Accounts
Withholding
taxes may be imposed under Sections 1471 to 1474 of the Code and applicable Treasury Regulations (“Foreign Account Tax Compliance
Act”, or “FATCA”), on certain types of payments made to non-U.S. financial institutions and certain other non-U.S.
entities. Specifically, a 30% withholding tax may be imposed on dividends on, or (subject to the proposed Treasury Regulations discussed
below) gross proceeds from the sale or other disposition of our Common Stock paid to a “foreign financial institution” or
a “non-financial foreign entity” (each as defined in the Code) (including, in some cases, when such foreign financial institution
or non-financial foreign entity is acting as an intermediary), unless (1) the foreign financial institution undertakes certain diligence
and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any “substantial United States
owners” (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (3) the
foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is
a foreign financial institution and is subject to the diligence and reporting requirements in (1) above, it must enter into an agreement
with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain “specified
United States persons” or “United States-owned foreign entities” (each as defined in the Code), annually report certain
information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other
account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States
governing FATCA may be subject to different rules.
Under
the applicable Treasury Regulations and administrative guidance, withholding under FATCA generally applies to payments of dividends on
our Common Stock. While withholding under FATCA would have applied also to payments of gross proceeds from the sale or other disposition
of stock on or after January 1, 2019, proposed Treasury Regulations, eliminate FATCA withholding on payments of gross proceeds entirely.
Taxpayers generally may rely on these proposed Treasury Regulations until final Treasury Regulations are issued.
We
will not pay additional amounts or “gross up” payments to holders as a result of any withholding or deduction for taxes imposed
under FATCA. Under certain circumstances, a non-U.S. holder might be eligible for refunds or credits of such taxes. Prospective investors
should consult their tax advisors regarding the potential application of FATCA to their investment in our Common Stock.
| EACH PROSPECTIVE
INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK,
INCLUDING THE CONSEQUENCES OF ANY RECENT OR PROPOSED CHANGE IN APPLICABLE LAW. |
LEGAL
MATTERS
The
validity of the shares of Common Stock offered hereby and certain other legal matters will be passed upon for us by Ellenoff Grossman
& Schole LLP.
EXPERTS
The
balance sheets of the Company. as of October 31, 2022 and 2021 and the related statements of operations, stockholders’ equity and
cash flows for the year ended October 31, 2022 and for the period from July 19, 2021 (inception) to October 31, 2021 appearing in this
prospectus have been audited by BF Borgers CPA PC, independent registered public accounting firm, as set forth in their report thereon
(which contains an explanatory paragraph relating to substantial doubt about the ability of the Company to continue as a going concern
as described in Note 3 to the financial statements), appearing elsewhere in this prospectus, and are included in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
KLS
Petroleum Consulting LLC, Denver, Colorado, an independent third-party engineering firm, carried out a reserve analysis of the South
Salinas Project that is documented in two reports that are attached hereto, being those reports entitled “Reserves Attributable
to Trio Petroleum Corp South Salinas Area for Development Plan Phases 1 and 2” and “S. Salinas Area, Full Development Reserves
Supplement to SEC Report Dated 1-28-2022”.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On
December 14, 2022, we dismissed Marcum LLP (“Marcum”), as our independent auditor. This dismissal was ratified by the audit
committee of our board of directors and approved by our board of directors.
Marcum
audited our financial statements for the for the period from July 19, 2021 (inception) to October 31, 2021. The audit report issued by
Marcum on March 17, 2022 did not contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as to audit
scope or accounting principles, but included an explanatory paragraph that there was substantial doubt as to the Company’s ability
to continue as a going concern. Marcum did not provide an audit opinion on our financial statements for any period subsequent to the
period from July 19, 2021 (inception) to October 31, 2021.
For
the period from July 19, 2021 (Inception) to October 31, 2021, the nine-month period ended July 31, 2022 and the period from August 1,
2022 to December 14, 2022, (i) there were no “disagreements” between us and Marcum (as that term is defined in Item 304(a)(1)(iv)
of Regulation S-K) on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of Marcum, would have caused them to make reference to the subject matter of
the disagreements in connection with their report on the financial statements for such period, and (ii) there were no “reportable
events” as such term is defined in Item 304(a)(1)(v) of Regulation S-K except for material weaknesses in internal controls relating
to (a) inadequate segregation of duties due to the limited number of employees resulting from the early formative stage of the Company;
(b) lack of controls around the calculation of the purchase price of the recently acquired unproved oil and gas property; (c) the lack
of controls around the issuance of shares of the Company’s Common Stock that should have been issued and presented as outstanding
in 2021, but were instead issued in the period ended July 31, 2022; (d) the lack of controls around the presentation of cash paid for
deferred offering costs on the statement of cash flows; (e) the lack of controls around the presentation of debt discount amortization
and cash paid for debt issuance costs on the statement of cash flows; (f) the lack of controls around the accounting and valuation for
complex financial instruments; and (g) the lack of controls around the determination of whether to capitalize vs. expense oil and gas
related costs. Marcum has not provided any audit or review services subsequent to October 28, 2022.
We
provided Marcum with a copy of the foregoing disclosures and requested Marcum to furnish us with a letter addressed to the Securities
and Exchange Commission stating whether or not Marcum agrees with the above disclosures. A copy of Marcum’s letter is referenced
as Exhibit 16.1 to the Registration Statement.
On
December 13, 2022, we engaged BF Borgers CPA PC (“Borgers”), as our independent registered public accounting firm, which
engagement has been ratified by the audit committee of our board of directors and approved by our board of directors. For the period
from July 19, 2021 (Inception) to October 31, 2021, the nine-month period ended July 31, 2022 and for the period from August 1, 2022
to December 14, 2022, we (or any person on our behalf) did not consult with Borgers regarding any of the matters described in Items 304(a)(2)(i)
or 304(a)(2)(ii) of Regulation S-K.
WHERE
YOU CAN FIND MORE INFORMATION
We
have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of Common Stock offered
hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in
the registration statement or the exhibits and schedules filed therewith. For further information about us and the shares of Common Stock
offered hereby, we refer you to the registration statement and the exhibits and schedules filed thereto. Statements contained in this
prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are
not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other
document filed as an exhibit to the registration statement. We are required to file periodic reports, proxy statements, and other information
with the SEC pursuant to the Exchange Act. The SEC also maintains an Internet website that contains reports, proxy statements and other
information about registrants, like us, that file electronically with the SEC. The address of that site is www.sec.gov.
We
are subject to the information and reporting requirements of the Exchange Act, and, in accordance with this law, file periodic reports
and other information with the SEC. These periodic reports and other information are available at the SEC’s website, www.sec.gov.
We also maintain a website at www.trio-petroleum.com. You may access these materials free of charge as soon as reasonably practicable
after they are electronically filed with, or furnished to, the SEC. Information contained on our website is not a part of this prospectus,
and the inclusion of our website address in this prospectus is an inactive textual reference only.
TRIO
PETROLEUM CORP.
FINANCIAL
STATEMENTS
FOR
THE YEAR ENDED OCTOBER 31, 2022 AND FOR THE PERIOD FROM JULY 19, 2021
(INCEPTION)
TO OCTOBER 31, 2021
TABLE
OF CONTENTS
| |
|
Page |
| |
|
|
| Report
of Independent Registered Public Accounting Firm |
|
F-2 |
| |
|
|
| Balance
Sheets as of October 31, 2022 and 2021 |
|
F-3 |
| |
|
|
| Statements
of Operations for the Year Ended October 31, 2022 and for the Period From July 19, 2021 (Inception) to October 31, 2021 |
|
F-4 |
| |
|
|
| Statements
of Changes in Stockholders’ Equity for the Year Ended October 31, 2022 and for the Period From July 19, 2021 (Inception) to
October 31, 2021 |
|
F-5 |
| |
|
|
| Statements
of Cash Flows for the Year Ended October 31, 2022 and for the Period From July 19, 2021 (Inception) to October 31, 2021 |
|
F-6 |
| |
|
|
| Notes
to the Financial Statements for the year ended October 31, 2022 and for the Period From July 19, 2021 (Inception) to October 31,
2021 |
|
F-7 |
TRIO
PETROLEUM CORP.
CONDENSED
FINANCIAL STATEMENTS
AS OF AND FOR THE NINE MONTHS ENDED JULY 31, 2023 AND 2022
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the shareholders and the board of directors of Trio Petroleum Corp.
Opinion
on the Financial Statements
We
have audited the accompanying balance sheets of Trio Petroleum Corp. (the “Company”) as of October 31, 2022 and 2021, the
related statement of operations, changes in stockholders’ equity, and cash flows for the period July 19, 2021 (Inception) through
October 31, 2021 and through October 31, 2022, and the related notes (collectively referred to as the “financial statements”).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October
31, 2022 and 2021, and the results of its operations and its cash flows for the period July 19, 2021 (Inception) through October 31,
2021 and through October 31, 2022, in conformity with accounting principles generally accepted in the United States.
Substantial
Doubt about the Company’s Ability to Continue as a Going Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note
3 to the financial statements, the Company has suffered recurring losses from operations and has a significant accumulated deficit. In
addition, the Company continues to experience negative cash flows from operations. These factors raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits
we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our
audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides
a reasonable basis for our opinion.
| /s/
BF Borgers CPA PC |
|
| BF
Borgers CPA PC (PCAOB ID 5041) |
|
| We
have served as the Company’s auditor since 2022 |
|
| Lakewood,
CO |
|
| January
20, 2023 |
|
TRIO
PETROLEUM CORP.
BALANCE
SHEETS
| | |
October 31, | | |
October 31, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| ASSETS | |
| | | |
| | |
| Current assets: | |
| | | |
| | |
| Cash | |
$ | 73,648 | | |
$ | 78,877 | |
| Prepaid expenses and other receivables | |
| 35,000 | | |
| 21,154 | |
| Deferred offering costs | |
| 1,643,881 | | |
| 190,298 | |
| Total current assets | |
| 1,752,529 | | |
| 290,329 | |
| | |
| | | |
| | |
| Oil and gas properties - not subject to amortization | |
| 5,836,232 | | |
| 5,583,720 | |
| Advance to operators | |
| 1,900,000 | | |
| 1,900,000 | |
| Total assets | |
$ | 9,488,761 | | |
$ | 7,774,049 | |
| | |
| | | |
| | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
| Current liabilities: | |
| | | |
| | |
| Accounts payable and accrued liabilities | |
| 1,164,055 | | |
| 16,119 | |
| Asset retirement obligations - current | |
| 2,778 | | |
| 2,778 | |
| Notes payable - investors, net of discounts | |
| 4,403,439 | | |
| - | |
| Notes payable - related party, net of discount | |
| 1,025,497 | | |
| 3,661,885 | |
| Warrants liability | |
| 114,883 | | |
| - | |
| Total current liabilities | |
| 6,710,652 | | |
| 3,680,782 | |
| | |
| | | |
| | |
| Long-term liabilities: | |
| | | |
| | |
| Franchise tax accrual | |
| 9,450 | | |
| - | |
| Asset retirement obligations, net of current portion | |
| 45,535 | | |
| 42,757 | |
| Total Long-term liabilities | |
| 54,985 | | |
| 42,757 | |
| Total liabilities | |
| 6,765,637 | | |
| 3,723,539 | |
| | |
| | | |
| | |
| Commitments and Contingencies (Note 6) | |
| - | | |
| | |
| | |
| | | |
| | |
| Stockholders’ Equity: | |
| | | |
| | |
| Preferred stock, $0.0001 par value; 10,000,000 shares authorized; -0- shares issued
and outstanding at October 31, 2022 and 2021, respectively | |
| - | | |
| - | |
| Common stock, $0.0001 par value; 490,000,000 shares authorized; 16,972,800 and
10,982,800 shares issued and outstanding as of October 31, 2022 and 2021, respectively | |
| 1,697 | | |
| 1,098 | |
| Stock subscription receivable | |
| (10,010 | ) | |
| (50,545 | ) |
| Additional paid-in capital | |
| 6,633,893 | | |
| 4,202,021 | |
| Accumulated deficit | |
| (3,902,456 | ) | |
| (102,064 | ) |
| Total stockholders’ equity | |
| 2,723,124 | | |
| 4,050,510 | |
| | |
| | | |
| | |
| Total liabilities and stockholders’ equity | |
$ | 9,488,761 | | |
$ | 7,774,049 | |
The
accompanying notes are an integral part of these financial statements.
TRIO
PETROLEUM CORP.
STATEMENTS
OF OPERATIONS
| | |
2022 | | |
2021 | |
| | |
For the
Year Ended
October 31, | | |
For the
Period From
July 19, 2021
(Inception) To
October 31, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| Revenue | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | |
| Exploration expense | |
$ | 28,669 | | |
$ | 38,763 | |
| General and administrative expenses | |
| 365,390 | | |
| 17,313 | |
| Stock-based compensation expense | |
| | | |
| | |
| Legal fees | |
| 409,191 | | |
| 7,514 | |
| Accretion expense | |
| 2,778 | | |
| 359 | |
| Total operating expenses | |
| 806,028 | | |
| 63,949 | |
| | |
| | | |
| | |
| Loss from operations | |
| (806,028 | ) | |
| (63,949 | ) |
| | |
| | | |
| | |
| Other expenses: | |
| | | |
| | |
| Interest Expense | |
| 1,661,981 | | |
| 38,115 | |
| Penalty fees (related to debt) (Note 8) | |
| 1,322,933 | | |
| - | |
| Loss on settlement | |
| | | |
| | |
| Loss on
note conversion | |
| | | |
| | |
| Licenses and fees | |
| 9,450 | | |
| - | |
| Total other expenses | |
| 2,994,364 | | |
| 38,115 | |
| | |
| | | |
| | |
| Loss before income taxes | |
| (3,800,392 | ) | |
| (102,064 | ) |
| Provision for income taxes | |
| - | | |
| - | |
| | |
| | | |
| | |
| Net loss | |
$ | (3,800,392 | ) | |
$ | (102,064 | ) |
| | |
| | | |
| | |
| Basic and Diluted Net Loss per Common Share | |
| | | |
| | |
| Basic | |
$ | (0.26 | ) | |
$ | (0.02 | ) |
| Diluted | |
$ | (0.26 | ) | |
$ | (0.02 | ) |
| | |
| | | |
| | |
| Weighted Average Number of Shares Outstanding During the Period | |
| | | |
| | |
| Basic | |
| 14,797,786 | | |
| 5,065,994 | |
| Diluted | |
| 14,797,786 | | |
| 5,065,994 | |
The
accompanying notes are an integral part of these financial statements.
TRIO
PETROLEUM CORP.
STATEMENTS
OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR
THE YEAR ENDED OCTOBER 31, 2022 AND FOR THE PERIOD FROM JULY 19, 2021
(INCEPTION) TO OCTOBER 31, 2021
| | |
Shares | | |
Amount | | |
Receivable | | |
Capital | | |
Deficit | | |
Equity | |
| | |
| | |
| | |
Stock | | |
Additional | | |
| | |
Total | |
| | |
Common Stock | | |
Subscription | | |
Paid-in | | |
Accumulated | | |
Stockholders’ | |
| | |
Shares | | |
Amount | | |
Receivable | | |
Capital | | |
Deficit | | |
Equity | |
| Balance at July 19, 2021 (Inception) | |
| - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| Founders’ shares | |
| 5,450,000 | | |
| 545 | | |
| (545 | ) | |
| - | | |
| - | | |
| - | |
| Issuance of common stock for cash, net | |
| 632,800 | | |
| 63 | | |
| (50,000 | ) | |
| 687,737 | | |
| - | | |
| 637,800 | |
| Issuance of conversion shares related to the SPA | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of conversion shares related to the SPA, Shares | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of commitment shares related to the SPA | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of commitment shares related to the SPA, Shares | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of common shares in IPO, net of underwriting discounts and offering costs | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of common shares in IPO, net of underwriting discounts and offering costs, Shares | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of pre-funded warrants | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of common stock for acquisition of unproved oil and gas properties | |
| 4,900,000 | | |
| 490 | | |
| - | | |
| 3,438,054 | | |
| - | | |
| 3,438,544 | |
| Interest imputed on Note Payable for acquisition of unproved oil and gas properties | |
| - | | |
| - | | |
| - | | |
| 76,230 | | |
| - | | |
| 76,230 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (102,064 | ) | |
| (102,064 | ) |
| Balance at October 31, 2021 | |
| 10,982,800 | | |
$ | 1,098 | | |
$ | (50,545 | ) | |
$ | 4,202,021 | | |
$ | (102,064 | ) | |
$ | 4,050,510 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance at November 1, 2021 | |
| 10,982,800 | | |
$ | 1,098 | | |
$ | (50,545 | ) | |
$ | 4,202,021 | | |
$ | (102,064 | ) | |
$ | 4,050,510 | |
| Issuance of founders’ shares | |
| 80,000 | | |
| 8 | | |
| 535 | | |
| - | | |
| - | | |
| 543 | |
| Issuance of security interest shares to investors | |
| 4,500,000 | | |
| 450 | | |
| - | | |
| 1,322,483 | | |
| - | | |
| 1,322,933 | |
| Issuance of common stock for cash, net | |
| 10,000 | | |
| 1 | | |
| 40,000 | | |
| 19,999 | | |
| - | | |
| 60,000 | |
| Issuance of warrants in connection with investor financing | |
| - | | |
| - | | |
| - | | |
| 994,091 | | |
| - | | |
| 994,091 | |
| Issuance of restricted stock units to outside directors | |
| 300,000 | | |
| 30 | | |
| - | | |
| (30 | ) | |
| - | | |
| - | |
| Issuance of restricted shares to executives | |
| 1,100,000 | | |
| 110 | | |
| | | |
| (110 | ) | |
| - | | |
| - | |
| Interest imputed on note payable for acquisition of unproved oil and gas properties | |
| - | | |
| - | | |
| - | | |
| 89,237 | | |
| - | | |
| 89,237 | |
| Stock-based compensation | |
| - | | |
| - | | |
| - | | |
| 6,202 | | |
| - | | |
| 6,202 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (3,800,392 | ) | |
| (3,800,392 | ) |
| Balance at October 31, 2022 | |
| 16,972,800 | | |
$ | 1,697 | | |
$ | (10,010 | ) | |
$ | 6,633,893 | | |
$ | (3,902,456 | ) | |
$ | 2,723,124 | |
The
accompanying notes are an integral part of these financial statements.
TRIO
PETROLEUM CORP.
STATEMENTS
OF CASH FLOWS
| | |
2022 | | |
2021 | |
| | |
For the
Year Ended
October 31, | | |
For the
Period From
July 19, 2021
(Inception) to
October 31, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | |
| Net loss | |
$ | (3,800,392 | ) | |
$ | (102,064 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
| Franchise tax fees | |
| 9,450 | | |
| - | |
| Bad debt expense | |
| | | |
| | |
| Accretion expense | |
| 2,778 | | |
| 359 | |
| Conversion of SPA | |
| | | |
| | |
| Interest expense - debt discount | |
| 1,218,951 | | |
| - | |
| Penalty fees | |
| 1,322,933 | | |
| - | |
| Imputed interest | |
| 89,237 | | |
| 38,115 | |
| Write-off of SPA receivable | |
| 80,000 | | |
| - | |
| Stock-based compensation | |
| 6,202 | | |
| | |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Prepaid expenses | |
| (13,846 | ) | |
| (211,452 | ) |
| Accounts payable and accrued liabilities | |
| 582,543 | | |
| 16,119 | |
| Net cash used in operating activities | |
| (502,144 | ) | |
| (258,923 | ) |
| | |
| | | |
| | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
| Cash paid for acquisition of unproved oil and gas properties | |
| - | | |
| (300,000 | ) |
| Drilling costs for exploratory well | |
| | | |
| | |
| Advances to operators | |
| | | |
| | |
| Net cash used in investing activities | |
| - | | |
| (300,000 | ) |
| | |
| | | |
| | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
| Cash proceeds from issuance of common stock, net | |
| 60,543 | | |
| 637,800 | |
| Cash proceeds from Notes payable - investors | |
| 4,820,000 | | |
| - | |
| Repayment of Notes payable - investors | |
| (2,920,000 | ) | |
| - | |
| Proceeds from issuance of common stock in IPO | |
| | | |
| | |
| Cash paid for debt issuance costs | |
| (575,438 | ) | |
| - | |
| Proceeds from exercise of warrants, net | |
| | | |
| | |
| Cash paid for deferred offering costs | |
| (888,190 | ) | |
| - | |
| Net cash from financing activities | |
| 496,915 | | |
| 637,800 | |
| | |
| | | |
| | |
| Effect of foreign currency exchange | |
| - | | |
| - | |
| | |
| | | |
| | |
| NET CHANGE IN CASH | |
| (5,229 | ) | |
| 78,877 | |
| Cash - Beginning of period | |
| 78,877 | | |
| - | |
| Cash - End of period | |
$ | 73,648 | | |
$ | 78,877 | |
| | |
| | | |
| | |
| Supplemental disclosures of cash flow information: | |
| | | |
| | |
| Cash paid for interest | |
$ | - | | |
$ | - | |
| Cash paid for income taxes | |
$ | - | | |
$ | - | |
| | |
| | | |
| | |
| SUPPLEMENTAL CASH FLOW INFORMATION: | |
| | | |
| | |
| Non-cash investing and financing activities: | |
| | | |
| | |
| Issuance of warrants (debt discount) | |
$ | 1,108,974 | | |
$ | - | |
| Issuance of notes payable for oil and gas properties | |
$ | - | | |
$ | 3,700,000 | |
| Issuance of RSUs | |
$ | 30 | | |
$ | - | |
| Imputed interest - notes payable | |
$ | - | | |
$ | 76,230 | |
| Issuance of founders’ shares | |
$ | - | | |
$ | 545 | |
| Issuance of shares for oil and gas properties | |
$ | - | | |
$ | 3,438,544 | |
The
accompanying notes are an integral part of these financial statements.
TRIO PETROLEUM CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED OCTOBER
31, 2022 AND FOR THE PERIOD FROM JULY 19, 2021
(INCEPTION) TO OCTOBER
31, 2021
NOTE 1 – NATURE OF THE ORGANIZATION AND
BUSINESS
Company
Organization
Trio Petroleum Corp. (“Trio
Petroleum” or the “Company”) was incorporated in the state of Delaware on July 19, 2021. The Company is engaged in
the exploration and development of the South Salinas Project (“SSP”), a non-producing oil and gas property located in Monterey
County, California, which it acquired from Trio Petroleum, LLC (“Trio LLC”). The Company is headquartered in Bakersfield,
California, with its principal offices located at 5401 Business Park, Suite 115, Bakersfield, CA, 93309. The Company has elected an October
31 year-end.
Acquisition
of South Salinas Project
On
September 14, 2021, the Company entered into a Purchase and Sale Agreement (the “Agreement”) with Trio LLC to acquire an
82.5% working interest in the SSP; the working interest includes the purchased percentage of the SSP’s leases, wells and inventory
in exchange for $300,000 cash, a non-interest-bearing note payable of $3,700,000 due to Trio LLC on December 17, 2021 (see Note 5 and
Note 8) and 4,900,000 shares of the Company’s $0.0001 par value common stock (see Note 4 and Note 9). At the time of the acquisition,
this share issuance constituted 45% of the total amount of issued shares of the Company. As of October 31, 2022 and 2021, there were
no proved reserves attributable to the approximate 9,267 acres of the property. The Company accounted for the purchase as an asset acquisition,
as prescribed in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805
– Business Combinations. The assets and associated asset retirement obligations (“ARO”) were recorded based
on relative fair value at the estimated fair value of the consideration paid (see Note 4).
Risks
and Uncertainties related to the COVID-19 Pandemic
In
March 2020, the World Health Organization characterized the outbreak of the novel strain of coronavirus, specifically identified as COVID-19,
as a global pandemic. This resulted in governments enacting emergency measures to combat the spread of the virus. These measures, which
include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruptions to
business resulting in a global economic slowdown. Equity markets have experienced significant volatility and weakness, and the governments
and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions.
Due
to the COVID-19 pandemic, there has been and will continue to be uncertainty and disruption in the global economy and financial markets.
As the COVID-19 pandemic begins to subside, it has, and could continue to result in shelter-in-place and other similar restrictions being
eased. Such easing of restrictions likely has and will continue to result in consumers returning to other alternative forms of entertainment
and interaction. This in turn has, and could continue to, result in a decline in demand for the Company’s services. The full extent
of the impact of the COVID-19 pandemic on the business, results of operations, cash flows and financial position will depend on future
developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak,
its severity, the prevalence and severity of any variants, the actions to contain the virus or treat its impact, and how quickly and
to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, the Company may experience
significant impacts to its business because of its global economic impact, including any economic downturn or recession that has occurred
or may occur in the future.
As
of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require
updates to its estimates and judgments or revisions due to COVID-19 to the carrying value of the Company’s assets or liabilities.
These estimates may change, as new events occur and additional information is obtained, and are recognized in the financial statements
as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the financial
statements.
Emerging
Growth Company
The
Company is an “emerging growth company,” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart
Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting
requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not
being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, reduced disclosure
obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding
a nonbinding advisory vote on executive compensation and approval of any golden parachute payments not previously approved. Further,
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting
standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do
not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting
standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements
that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of
such extended transition period which means that when a standard is issued or revised and it has different application dates for public
or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies
adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which
is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult
or impossible because of the potential differences in accounting standards used.
NOTE
2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States
of America (“US GAAP”). The summary of significant accounting policies presented below is designed to assist in understanding
the Company’s financial statements. Such financial statements and accompanying notes are the representations of Company’s
management, who is responsible for their integrity and objectivity.
Revision of Previously Issued Financial Statements
Subsequent to the filing of
the Company’s Draft Registration Statement filed with the Securities and Exchange Commission (“SEC”) on March 17, 2022,
which included the Company’s financial statements for the period ended October 31, 2021, and subsequent to the filing of the Company’s
Form S-1 with the SEC on September 12, 2022, which included the Company’s financial statements for the periods ended April 30,
2022 and October 31, 2021, the Company identified an error in presentation within the Condensed Balance Sheets for these periods. The
Company presented Oil and gas properties – not subject to amortization of $7,483,720 in the long-term asset section of the balance
sheet as of April 30, 2022 and October 31, 2021; a portion of this amount ($1,900,000) should have been classified as Advance to operators
in the long-term asset section of the balance sheet as of April 30, 2022 and October 31, 2021. These amounts have been correctly presented
in the accompanying financial statements. The impact of the revision on the Company’s financial statements is reflected in the
following table:
SCHEDULE OF REVISION OF
PREVIOUSLY ISSUED FINANCIAL STATEMENTS
| Balance Sheet as of April 30, 2022 (unaudited) | |
As Previously
Reported in the Original Filing | | |
Adjustment | | |
As Revised | |
| | |
| | |
| | |
| |
| Oil and gas properties - not subject to amortization | |
$ | 7,483,720 | | |
$ | (1,900,000 | ) | |
$ | 5,583,720 | |
| Advance to operators | |
| - | | |
$ | 1,900,000 | | |
$ | 1,900,000 | |
| Balance Sheet as of October 31, 2021 (audited) | |
As Previously
Reported in the Original Filing | | |
Adjustment | | |
As Revised | |
| | |
| | |
| | |
| |
| Oil and gas properties - not subject to amortization | |
$ | 7,483,720 | | |
$ | (1,900,000 | ) | |
$ | 5,583,720 | |
| Advance to operators | |
| - | | |
$ | 1,900,000 | | |
$ | 1,900,000 | |
Use
of Estimates
The
preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, equity-based transaction and disclosure of contingent assets and liabilities at the date of
the financial statements, and the revenue and expenses during the reporting period.
Making
estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of
a condition, situation or set of circumstances that existed at the date of the financial statement, which management considered in formulating
its estimate, could change in the near term due to one or more future confirming events. Some of the more significant estimates required
to be made by management include estimates of oil and natural gas reserves (when and if assigned) and related present value estimates
of future net cash flows therefrom, the carrying value of oil and natural gas properties, accounts receivable, ARO and the valuation
of equity-based transactions. Accordingly, actual results could differ significantly from those estimates.
Cash
The
Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents.
The Company had no cash equivalents as of October 31, 2022 and 2021.
Prepaid
Expenses
Prepaid
expenses consist primarily of prepaid services which will be expensed as the services are provided within twelve months.
Deferred
Offering Costs
Deferred
offering costs consist of professional fees, filing, regulatory and other costs incurred through the balance sheet date that are directly
related to the planned Initial Public Offering (“IPO”) (see Note 3). As of October 31, 2022 and 2021, offering costs in the
aggregate of $1,643,881 and $190,298, respectively, were deferred.
Debt
Issuance Costs
Costs
incurred in connection with the issuance of the Company’s debt have been recorded as a direct reduction against the debt and amortized
over the life of the associated debt as a component of interest expense.
Oil
and Gas Assets and Exploration Costs – Successful Efforts
The
Company is in the exploration stage and has not yet realized any revenues from its operations. It applies the successful efforts method
of accounting for crude oil and natural gas properties. Under this method, exploration costs such as exploratory geological and geophysical
costs, delay rentals and exploratory overhead are expensed as incurred. If an exploratory property provides evidence to justify potential
development of reserves, drilling costs associated with the property are initially capitalized, or suspended, pending a determination
as to whether a commercially sufficient quantity of proved reserves can be attributed to the area as a result of drilling. At the end
of each quarter, management reviews the status of all suspended exploratory property costs in light of ongoing exploration activities;
in particular, whether the Company is making sufficient progress in its ongoing exploration and appraisal efforts. If management determines
that future appraisal drilling or development activities are unlikely to occur, associated exploratory well costs are expensed.
Costs
to acquire mineral interests in crude oil and/or natural gas properties, drill and equip exploratory wells that find proved reserves
and drill and equip development wells are capitalized. Acquisition costs of unproved leaseholds are assessed for impairment during the
holding period and transferred to proven crude oil and/or natural gas properties to the extent associated with successful exploration
activities. Significant undeveloped leases are assessed individually for impairment, based on the Company’s current exploration
plans, and a valuation allowance is provided if impairment is indicated. Capitalized costs from successful exploration and development
activities associated with producing crude oil and/or natural gas leases, along with capitalized costs for support equipment and facilities,
are amortized to expense using the unit-of-production method based on proved crude oil and/or natural gas reserves on a field-by-field
basis, as estimated by qualified petroleum engineers. As of October 31, 2022 and 2021, all of the Company’s oil and gas properties
were classified as unproved properties and were not subject to depreciation, depletion and amortization.
Unproved
oil and natural gas properties
Unproved
oil and natural gas properties costs incurred to acquire unproved leases. Unproved lease acquisition costs are capitalized
until the lease expires or when the Company specifically identifies a lease that will revert to the lessor, at which time it charges
the associated unproved lease acquisition costs to exploration costs.
Unproved
oil and natural gas properties are not subject to amortization and are assessed periodically for impairment on a property-by-property
basis based on remaining lease terms, drilling results or future plans to develop acreage. All of the Company’s natural gas properties
were classified as unproved as of October 31, 2022 and 2021. See further discussion in Note 4.
Impairment
of Other Long-lived Assets
The
Company reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the
historical cost-carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of
the asset by estimating the future net undiscounted cash flows expected to result from the asset, including eventual disposition. If
the future net undiscounted cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference
between the asset’s carrying value and estimated fair value. With regards to oil and gas properties, this assessment applies to
proved properties.
As
of October 31, 2022 and 2021, the Company had no impairment of long-lived assets.
Asset
Retirement Obligations
ARO
consist of future plugging and abandonment expenses on oil and natural gas properties. In connection with the SSP acquisition described
above, the Company acquired the plugging and abandonment liabilities associated with six non-producing wells. The fair value of the ARO
was recorded as a liability in the period in which the wells were acquired with a corresponding increase in the carrying amount of oil
and natural gas properties not subject to impairment. The Company plans to utilize the six wellbores acquired in the SSP acquisition
in future exploration activities. The liability is accreted for the change in its present value each period based on the expected dates
that the wellbores will be required to be plugged and abandoned. The capitalized cost of ARO is included in oil and gas properties and
is a component of oil and gas property costs for purposes of impairment and, if proved reserves are found, such capitalized costs will
be depreciated using the units-of-production method. The asset and liability are adjusted for changes resulting from revisions to the
timing or the amount of the original estimate when deemed necessary. If the liability is settled for an amount other than the recorded
amount, a gain or loss is recognized.
Components
of the changes in ARO are shown below:
SCHEDULE
OF COMPONENTS OF CHANGES IN ARO
| ARO, ending balance – October 31, 2021 | |
$ | 45,535 | |
| Accretion expense | |
| 2,778 | |
| ARO, ending balance – October 31, 2022 | |
| 48,313 | |
| Less: ARO – current | |
| 2,778 | |
| ARO, net of current portion | |
$ | 45,535 | |
Related
Parties
Parties
are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are
controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management,
members of the immediate families of principal owners of the Company and its management and other parties with which the Company may
deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of
the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions.
All transactions with related parties are recorded at fair value of the goods or services exchanged. Property purchased from a related
party is recorded at the cost to the related party and any payment to or on behalf of the related party in excess of the cost is reflected
as a distribution to related party. On September 14, 2021, the Company acquired an 82.75% working interest in the SSP from Trio LLC in
exchange for cash, a note payable to Trio LLC and the issuance of 4.9 million shares of common stock. As of the date of the acquisition,
Trio LLC owned 45% of the outstanding shares of the Company and is considered a related party. As of October 31, 2022 and 2021, Trio
LLC owned 29% and 45%, respectively, of the outstanding shares of the Company.
Income
Taxes
Deferred
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit
carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
The
Company utilizes ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial statements or tax returns. The Company accounts for income
taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related
financial amounts, using currently enacted tax rates. A valuation allowance is recorded when it is “more likely than not”
that a deferred tax asset will not be realized. At October 31, 2022 and 2021, the Company’s net deferred tax asset has been fully
reserved.
For
uncertain tax positions that meet a “more likely than not” threshold, the Company recognizes the benefit of uncertain tax
positions in the financial statements. The Company’s practice is to recognize interest and penalties, if any, related to uncertain
tax positions in income tax expense in the statements of operations when a determination is made that such expense is likely. The Company
is subject to income tax examinations by major taxing authorities since inception.
Fair
Value Measurements
The
carrying values of financial instruments comprising cash and cash equivalents, payables, and notes payable-related party approximate
fair values due to the short-term maturities of these instruments. The notes payable- related party is considered a level 3 measurement.
As defined in ASC 820, Fair Value Measurements and Disclosures, fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company
utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about
risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or
generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and
the lowest priority to unobservable inputs (Level 3 measurement). This fair value measurement framework applies at both initial and subsequent
measurement.
| Level 1: |
Quoted prices are available in active markets for identical assets
or liabilities as of the reporting date. |
| |
|
| Level 2: |
Pricing inputs are other than quoted prices in active markets included
in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments
that are valued using models or other valuation methodologies. |
| |
|
| Level 3: |
Pricing inputs include significant inputs that are generally less
observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s
best estimate of fair value. The significant unobservable inputs used in the fair value measurement for nonrecurring fair value measurements
of long-lived assets include pricing models, discounted cash flow methodologies and similar techniques. |
There
are no assets or liabilities measured at fair value on a recurring basis. Assets and liabilities accounted for at fair value on a non-recurring
basis in accordance with the fair value hierarchy include the initial allocation of the asset acquisition purchase price, including asset
retirement obligations, the fair value of oil and natural gas properties and the assessment of impairment.
The
fair value measurements and allocation of assets acquired are measured on a nonrecurring basis on the acquisition date using an income
valuation technique based on inputs that are not observable in the market and therefore represent Level 3 inputs. Significant inputs
used to determine the fair value include estimates of: (i) reserves; (ii) future commodity prices; (iii) operating and development costs;
and (iv) a market-based weighted average cost of capital rate. The underlying commodity prices embedded in the Company’s estimated
cash flows are the product of a process that begins with NYMEX forward curve pricing, adjusted for estimated location and quality differentials,
as well as other factors that the Company’s management believes will impact realizable prices. These inputs require significant
judgments and estimates by the Company’s management at the time of the valuation.
The
fair value of additions to the asset retirement obligation liabilities is measured using valuation techniques consistent with the income
approach, which converts future cash flows to a single discounted amount. Significant inputs to the valuation include: (i) estimated
plug and abandonment cost per well for all oil and natural gas wells and for all disposal wells; (ii) estimated remaining life per well;
(iii) future inflation factors; and (iv) the Company’s average credit-adjusted risk-free rate. These assumptions represent Level
3 inputs.
If
the carrying amount of its proved oil and natural gas properties, which are assessed for impairment under ASC 360 – Property,
Plant and Equipment, exceeds the estimated undiscounted future cash flows, the Company will adjust the carrying amount of the oil
and natural gas properties to fair value. The fair value of its oil and natural gas properties is determined using valuation techniques
consistent with the income and market approach. The factors used to determine fair value are subject to management’s judgment and
expertise and include, but are not limited to, recent sales prices of comparable properties, the present value of future cash flows,
net of estimated operating and development costs using estimates of proved reserves, future commodity pricing, future production estimates,
anticipated capital expenditures, and various discount rates commensurate with the risk and current market conditions associated with
the expected cash flow projected. These assumptions represent Level 3 inputs.
Net
Loss Per Share
Net
loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the reporting period.
Diluted earnings per share is computed similar to basic earnings per share, except the weighted average number of common shares outstanding
are increased to include additional shares from the assumed exercise of share options, warrants and convertible notes, if dilutive.
The
following common share equivalents are excluded from the calculation of weighted average common shares outstanding, because their inclusion
would have been anti-dilutive (see Note 9):
SCHEDULE
OF WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ANTI-DILUTIVE
| | |
As of
October 31, | | |
As of
October
31, | |
| | |
2022 | | |
2021 | |
| Warrants (Note
6, Note 8) (1) | |
| 1,093,107 | | |
| - | |
| Convertible Notes (Note
6, Note 8) (2) | |
| 2,772,429 | | |
| - | |
| Commitment Shares (Note 6, Note 8) (3) | |
| 321,429 | | |
| - | |
| Stock Options (Note 5,
Note 9) (4) | |
| 1,400,000 | | |
| - | |
| Total potentially dilutive securities | |
| 5,586,965 | | |
| - | |
| (1) |
Balance includes i) warrants issued per the SPA are exercisable into up to 50% of the number of shares of common stock issued upon
full conversion of the Notes, with an exercise price equal to the conversion price, as well as ii) pre-funded warrants issued per the
Bridge Note, the number of which are equal one share per dollar of the Notes aggregate principal balance. See Note 10 for further
information regarding this SPA. |
| (2) |
Upon IPO, the debt will convert into a fixed dollar amount of $9,000,000
of a variable number of shares. The number of conversion shares is the outstanding principal amount divided by the conversion price, which
is equal to the lesser of a) the IPO price or b) the opening price of the shares of Common Stock on the first trading day after the IPO
multiplied by the discount of 50%. |
| (3) |
The number of commitment shares to be issued is a variable number of shares for a fixed total dollar amount of $1,125,000, which
is 25% of the aggregate Notes principal balance divided by the offering price of the IPO. |
| (4) |
Balance consists of 300,000 restricted stock
units issued to outside directors and 1,100,000 restricted shares granted to executives. |
Environmental
Expenditures
The
operations of the Company have been, and may in the future be, affected from time to time in varying degree by changes in environmental
regulations, including those for future reclamation and site restoration costs. Both the likelihood of new regulations and their overall
effect upon the Company vary greatly and are not predictable. The Company’s policy is to meet or, if possible, surpass standards
set by relevant legislation by application of technically proven and economically feasible measures.
Environmental
expenditures that relate to ongoing environmental and reclamation programs are charged against earnings as incurred or capitalized and
amortized depending on their future economic benefits. All of these types of expenditures incurred since inception have been charged
against earnings due to the uncertainty of their future recoverability. Estimated future reclamation and site restoration costs, when
the ultimate liability is reasonably determinable, are charged against earnings over the estimated remaining life of the related business
operation, net of expected recoveries.
Recent
Accounting Pronouncements
All
recently issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.
Subsequent
Events
The
Company, in accordance with ASC 855 - Subsequent Events, evaluates all events and transactions that occurred after October 31,
2022 through the date the financial statements were available for issuance. See Note 10 - Subsequent Events for such events and transactions.
NOTE
3 – GOING CONCERN AND MANAGEMENT’S LIQUIDITY PLANS
As
of October 31, 2022, the Company had $73,648 in its operating bank account and a working capital deficit of $6,602,004 (excluding deferred
offering costs). To date, the Company has been funding operations through proceeds from the issuance of common stock and financing through
certain investors. In connection with the SSP acquisition, the Company issued a non-interest-bearing note payable to the seller with
a face value of $3,700,000 due on December 1, 2022, of which it has made payments of $2,920,000 as of October 31, 2022 (see Note 5 and
Note 8). Additionally, in January 2022, the Company entered into a Securities Purchase Agreement (“SPA”) with GenCap Fund
I LLC (“GenCap”) (see Note 6 and Note 8), which is a group of six investors, pursuant to which (i) in exchange for $4,500,000
in consideration, the Company issued senior secured convertible promissory notes (“Notes”) with an aggregate principal amount
of $4,500,000, (ii) the Company issued warrants to purchase up to 50% of the number of shares of common stock issued upon the full conversion
of the Notes, and (iii) conditional upon a successful IPO, the Company agreed to issue commitment shares to the investors upon the date
of the Company’s IPO (see Note 10 for further information regarding this SPA). The Company used $2.0 million of the proceeds
provided by GenCap to pay down the non-interest-bearing note payable to Trio LLC.
Additionally,
in September 2022, the Company entered into an agreement or bridge note (“Bridge Note”) with three investors; the Bridge
Note includes original issue discount senior notes (“Notes”) with gross proceeds of $444,000 and a 10% Original Issue Discount
(“OID”) of $44,000 and pre-funded warrants that permit the investors to purchase a number of shares of the Company’s
common stock (equal to 100% of the original principal amount of the Notes. The Notes have a maturity date of the earlier of six months
from the closing of this financing or the completion of the IPO.
The
accompanying financial statements have been prepared on the basis that the Company will continue as a going concern over the next twelve
months from the date of issuance of these financial statements, which assumes the realization of assets and the satisfaction of liabilities
in the normal course of business. As of October 31, 2022, the Company has an accumulated deficit of $3,902,456 and has experienced losses
from continuing operations. Based on the Company’s cash balance as of October 31, 2022, and projected cash needs for the twelve
months following the issuance of these financial statements, management estimates that it will need to generate sufficient sales revenue
and/or raise additional capital to cover operating and capital requirements. Management will need to raise the additional funds through
an IPO, which it hopes to complete during the first quarter of fiscal year 2023, or by issuing additional shares of common stock or other
equity securities or obtaining additional debt financing. Although management has been successful to date in raising necessary funding
and obtaining financing through investors, there can be no assurance that any required future financing can be successfully completed
on a timely basis, or on terms acceptable to the Company. Based on these circumstances, management has determined that these conditions
raise substantial doubt about the Company’s ability to continue as a going concern for the twelve months following the issuance
of these financial statements.
Accordingly,
the accompanying financial statements have been prepared in conformity with U.S. GAAP, which contemplates continuation of the Company
as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
The
current COVID-19 pandemic could continue to, and future similar epidemics or pandemics could also, materially and adversely impact the
Company’s ability to finance and conduct its business once it becomes operational and could materially and adversely impact its
operations, funding, and/or financial performance. The COVID-19 pandemic has had no material impact on the Company’s current business
activities which are primarily focused on compliance and fund-raising tasks. The Company has had and continues to have the same staff,
same service providers and same processes as was the case prior to the pandemic.
There
is an ongoing conflict involving Russia and Ukraine and the war between the two countries continues to evolve as military activity proceeds
and additional sanctions are imposed. The war is increasingly affecting economic and global financial markets and exacerbating ongoing
economic challenges, including issues such as rising inflation and global supply-chain disruption. While the Company does not believe
this conflict currently has a material impact on its financial accounting and reporting, the degree to which it will be affected in the
future largely depends on the nature and duration of uncertain and unpredictable events, and its business could be impacted. Furthermore,
future global conflicts or wars could create further economic challenges, including, but not limited to, increases in inflation and further
global supply-chain disruption. Consequently, the ongoing Russia/Ukraine conflict and/or other future global conflicts could result in
an increase in operating expenses and/or a decrease in any future revenue and could further have a material adverse effect on the Company’s
results of operations and cash flow.
The
Company’s ability to commence operations is contingent upon obtaining adequate financial resources through an IPO.
NOTE
4 – OIL AND NATURAL GAS PROPERTIES
The
following tables summarize the Company’s oil and gas activities.
SCHEDULE OF OIL AND NATURAL GAS PROPERTIES
| | |
As
of
October 31, | | |
As
of
October
31, | |
| | |
2022 | | |
2021 | |
| Oil
and gas properties – not subject to amortization | |
$ | 5,836,232 | | |
$ | 5,583,720 | |
| Accumulated
impairment | |
| — | | |
| — | |
| Oil
and gas properties – not subject to amortization, net | |
$ | 5,836,232 | | |
$ | 5,583,720 | |
During
the years ended October 31, 2022, the Company incurred aggregated exploration costs of $28,669 and $38,763, respectively, mainly for the
purpose of the site surveys related to the drilling of wells; these costs were expensed on the statement of operations.
As of October 31, 2022,
the Company holds two leases related to the unproved properties of the SSP (see Note 5, Note 6). On May 27, 2022, the Company entered
into an Amendment to one of the lease agreements, which provides for an extension of the current force majeure status for an additional,
uncontested twelve months, during which the Company will be released from having to evidence to the lessor the existence of force majeure
conditions. As consideration for the granting of the lease extension, the Company paid the lessor a one-time, non-refundable payment
of $252,512; this amount was capitalized and is reflected in the balance of the oil and gas property as of October 31, 2022.
The
Company did not record any impairment to the oil and gas property for the years ended October 31, 2022 and 2021, as all capitalized costs
represent costs to acquire unproved property leases pending further development on the balance sheet. There is no depletion related to
the oil and gas property as of October 31, 2022, as the Company does not currently have production and the acquired property is not subject
to amortization as of October 31, 2022.
South
Salinas Project
On
September 14, 2021, the Company entered into a Purchase and Sale Agreement (the “Agreement”) with Trio LLC to acquire an
82.75% working interest in the SSP; the working interest includes the purchased percentage of the SSP’s leases, wells and inventory
in exchange for consideration as follows:
SCHEDULE
OF ASSETS ACQUISITION
| | |
South Salinas
Project | |
| Cash | |
$ | 300,000 | |
| Note Payable –
Related Party (Note 5 and Note 8) | |
| 3,700,000 | |
| Common
shares issued (4.9M shares at an estimated fair value of $0.70) | |
| 3,438,544 | |
| Total
consideration | |
$ | 7,438,544 | |
The fair value of the consideration
transferred was allocated to the acquired oil and natural gas properties (which includes asset retirement costs), advance to operators
and ARO liabilities as follows:
SCHEDULE
OF FAIR VALUE OF ASSET ACQUISITION
| | |
South Salinas
Project | |
| Acquired
unproved oil and gas properties | |
$ | 5,583,720 | |
| Advance to operators | |
| 1,900,000 | |
| Assumed
ARO liabilities | |
| (45,176 | ) |
| Total
consideration | |
$ | 7,438,544 | |
At
the time of the acquisition, this share issuance constituted 45% of the total amount of issued shares of the Company. Trio LLC continues
to operate the SSP, as well as other working interests in other projects that it owns. As of October 31, 2022 and 2021, Trio LLC owns
approximately 29% and 45%, respectively, of the Company’s outstanding shares as a result of the shares issued to them in exchange
for the sale of the SSP.
As
of October 31, 2022 and 2021, there were no proved reserves attributable to the acreage. The Company accounted for the purchase as an
asset acquisition, as prescribed in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
805 – Business Combinations. The purchase price was allocated to the unproved properties based on the consideration paid,
as determined by an independent third party.
The
third-party calculation of the consideration paid for the transaction was $7,438,544, which consisted of $5,583,720 for the acquired
oil and natural gas properties, $1,900,000 for an advance to operators and $45,176 in ARO liabilities. Given the cash consideration of
$300,000, the related party note payable of $3,623,770 (net of imputed interest of $76,230) and ownership interest paid, the equity portion
of the consideration of 4.9 million shares of common stock was determined to be $0.70 per share.
NOTE
5 – RELATED PARTY TRANSACTIONS
Related
Party Note Payable
On
September 14, 2021, the Company entered into a related party note payable with Trio LLC as part of the agreement for the purchase of
an 82.75% working interest in the SSP (see Note 1). Per the Third Amendment signed on May 27, 2022, a portion of a previous payment made
to Trio LLC was used to fund a lease extension payment to a third-party; as the payment previously made was to be used for other expenditures,
the amount used to fund the lease extension will be added to the remaining amount due to Trio LLC, increasing it from $780,000 to $1,032,512.
The Company will make the final payment of $1,032,512 at the earlier of i) the IPO or ii) April 1, 2023 (see Note 10 – Fourth
Amendment to the PSA). As of October 31, 2022 and 2021, the balance of the related party note payable was $1,025,497 (net of imputed
interest of $7,015) and $3,661,885 (net of imputed interest of $38,115), with aggregate payments made of $2,920,000 and $0 and interest
expense recognized of $120,337 and $38,115 during the years ended October 31, 2022 and 2021, respectively (see Note 8).
Restricted
Stock Units (“RSUs”) issued to Directors
On
July 11, 2022, the Company issued 60,000 shares of its $0.0001 par common stock to each of its five outside Directors for a total aggregate
amount of 300,000 shares. The shares, or RSUs, vest in full upon the six-month anniversary of the IPO, subject to the directors’
continued service on the vesting date; upon issuance, the shares will be fully paid and non-assessable.
As of October 31, 2022, as
the IPO has not been finalized, no shares have vested and no stock-based compensation has been recognized.
Restricted Shares issued to Executives
In February 2022, the Company
entered into employee agreements with Mr. Frank Ingriselli (Chief Executive Officer or “CEO”) and Mr. Greg Overholtzer (Chief
Financial Officer or “CFO”) which, among other things, provided for the grant of restricted shares in the amounts of 1,000,000
and 100,000, respectively, pursuant to the 2022 Equity Incentive Plan (“the Plan”). Per the terms of the employee agreements,
subject to continued employment, the restricted shares vest over a two-year period, under which 25% will vest upon the earlier of three
months after the IPO or six months after the grant date. After this date, the remainder vest in equal tranches every six months until
fully vested. As the Plan was not adopted until October 17, 2022 (see Note 6), these shares will be recorded as of that date at a fair
value of $0.294 per share; such value was calculated via a third-party valuation performed using income and market methods, as well as
a discounted cash flow method, with the terminal value using a market multiples method, adjusted for a lack of marketability (see Note
9). As of October 31, 2022, the Company recorded 1,100,000 restricted shares at a fair value of $323,400 and stock-based compensation
expense of $6,202, with unrecognized expense of $317,198.
NOTE
6 – COMMITMENTS AND CONTINGENCIES
From
time to time, the Company is subject to various claims that arise in the ordinary course of business. Management believes that any liability
of the Company that may arise out of or with respect to these matters will not materially adversely affect the financial position, results
of operations, or cash flows of the Company.
Unproved
Property Leases
As
of October 31, 2022, the Company holds two leases related to the unproved properties of the SSP. Both leases are held with the same lessor
and are currently valid. The first lease covers 8,417 acres, or 98% of the SSP, and is currently in “force majeure” status.
On May 27, 2022, the Company entered into an Amendment to the lease agreement which provides for an extension of the current force majeure
status for an additional, uncontested twelve months, during which the Company will be released from having to evidence to the lessor
the existence of force majeure conditions. As consideration for the granting of the lease extension, the Company paid the lessor a one-time,
non-refundable payment of $252,512; this amount was capitalized and is reflected in the balance of the oil and gas property as of October
31, 2022. The extension period commenced on June 19, 2022.
The second lease covers
160 acres or 2% of the SSP and is currently held by delay rental. The lease is renewed every three years and its next renewal is set
to commence on October 26, 2022. Until drilling commences, the Company is required to make delay rental payments of $30/acre per year.
The Company is currently in compliance with this requirement and has paid in advance the delay rental payment for the period October
2022 – October 2023.
As
of October 31, 2022, the Company assessed the unproved properties of the SSP for impairment, analyzing future drilling plans, leasehold
expiration and the existence of any known dry holes in the area. Management concluded there is no impairment allowance required as of
the balance sheet date.
Securities
Purchase Agreement with Investors
On January 28, 2022, the Company
entered into a SPA with GenCap (see Note 3 and Note 8), pursuant to which (i) in exchange for $4,500,000 in consideration, the
Company issued senior secured convertible promissory notes (“Notes”) with an aggregate principal amount of $4,500,000, (ii)
the Company issued warrants to purchase up to 50% of the number of shares of common stock issued upon the full conversion of the Notes,
and (iii) conditional upon a successful IPO, the Company agreed to issue commitment shares to the investors upon the date of the Company’s
IPO.
The
Notes have a maturity date of the earlier of January 28, 2023 or the IPO and bear interest at a rate of 8%
per annum, which is to be accrued and paid on the maturity date. If the Company’s IPO does not occur by August 1, 2022 or upon
default, the interest percentage increases to 15%
per annum. The principal and interest payable on the Notes will automatically convert into shares upon IPO. The conversion price is the
lesser of i)
the IPO price multiplied by the discount of 50% or ii) the opening price of the shares of common stock on the trading day following the
date of the IPO multiplied by the discount of 50%. The number of conversion shares is the outstanding principal amount divided
by the conversion price. Upon IPO, the debt will convert into a fixed dollar amount of $9,000,000
of a variable number of shares. Additionally, the Company has the option to prepay the Notes at any time after the original issue
date prior to the maturity date at an amount equal to 125%
of the prepayment amount.
The commitment shares are
to be issued upon the date of the IPO. The number of commitment shares to be issued is a variable number of shares for a fixed total
dollar amount of $1,125,000, which is 25% of the aggregate Notes principal balance divided by the offering price of the IPO. No shares
will be issued if there is no IPO.
Pursuant to the terms of the
SPA with GenCap, the Company issued warrants to purchase Common Stock to the GenCap Investors (the
“GenCap Warrants”). The GenCap Warrants are exercisable into up to 50% of the number of shares of common
stock issued upon full conversion of the Notes, with an exercise price equal to the conversion price. Accordingly, upon IPO, warrant
holders can receive up to $4,500,000 worth of common stock in exchange for a cash payment of 50% of the IPO price, or up to
$2,250,000.
See
Note 10 for further information regarding this SPA.
Board
of Directors Compensation
On
July 11, 2022, the Company’s Board of Directors approved compensation for each of the non-employee directors of the Company as
follows: an annual retainer of $50,000 cash, plus an additional $10,000 for each Board committee upon which the Director serves, each
paid quarterly in arrears. Payment for this approved compensation will commence upon successful completion of the Company’s IPO.
Agreement
with Advisors
On
July 28, 2022, the Company entered into an agreement with Spartan Capital Securities, LLC (“Spartan”) whereby Spartan will
serve as the exclusive agent, advisor or underwriter in any offering of securities of the Company for the term of the agreement, which
is one year. The agreement provides for a $25,000
refundable advance (which will be reimbursed
to the Company to the extent not actually incurred, regardless of the termination of the offering (see FINRA Rule 5110(g)(4)(A)) upon
execution of the agreement and completion of a bridge offering to be credited against the accountable expenses incurred by Spartan upon
successful completion of the IPO, a cash fee or an underwriter discount of 7.5% of the aggregate proceeds raised in the IPO, warrants to purchase a number of common shares equal to 5% of the aggregate number of common shares placed in the IPO, an expense allowance of up to $150,000 for fees and expenses of legal counsel and other out-of-pocket expenses and 1% of the gross proceeds of the IPO to Spartan for non-accountable expenses. The agreement also provides for an option to Spartan that is exercisable within 45 days after the closing of the IPO to purchase up to an additional 15% of the total number of securities offered by the Company in the IPO.
2022 Equity Incentive Plan
On October 17, 2022, the
Company adopted and approved the 2022 Equity Incentive Plan
(“the Plan”). Under the Plan, the Company may (a) grant options to purchase common stock and (b) offer to sell
and issue restricted shares of common stock (collectively, “Awards”) to selected employees, officers, directors and consultants
of the Company as an incentive to such eligible persons in order to attract and retain highly competent persons as directors, officers,
key employees, consultants and independent contractors by providing them opportunities to acquire shares of common stock of the Company.
The Company has reserved 4,000,000 shares of its common stock for issuance in connection with the Plan (see Note 9).
NOTE
7 – INCOME TAXES
The
Company accounts for income taxes under ASC 740-10, which provides for an asset and liability approach of accounting for income taxes.
Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences, using currently
enacted tax laws, attributed to temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts calculated for income tax purposes.
Significant
components of the Company’s deferred tax assets are summarized below.
SCHEDULE
OF SIGNIFICANT COMPONENTS OF DEFERRED TAX ASSETS
| | |
As
of
October 31, | | |
As
of
October
31, | |
| | |
2022 | | |
2021 | |
| Deferred tax assets: | |
$ | - | | |
$ | - | |
| Net
operating loss carry forwards | |
| 797,000 | | |
| 21,000 | |
| Total deferred tax
asset | |
| 797,000 | | |
| 21,000 | |
| Valuation
allowance | |
| (797,000 | ) | |
| (21,000 | ) |
| Net
deferred tax assets | |
$ | - | | |
$ | - | |
As of October 31, 2022
and 2021, the Company had approximately $797,000 and $21,000, respectively, in net operating loss carry-forwards for federal and state
income tax reporting (tax effected) purposes. As a result of the Tax Cuts Job Act 2017 (the “Act”), certain future carryforwards
do not expire. The Company has not performed a formal analysis but believes its ability to use such net operating losses and tax credit
carryforwards in the future is subject to annual limitations due to change of control provisions under Sections 382 and 383 of the Internal
Revenue Code, which will significantly impact its ability to realize these deferred tax assets.
The
Company recorded a valuation allowance in the full amount of its net deferred tax assets since realization of such tax benefits has been
determined by the Company’s management to be less likely than not. The valuation allowance increased $776,000 and $21,000 during
the years ended October 31, 2022 and 2021, respectively.
A
reconciliation of the statutory federal income tax benefit to actual tax benefit is as follows:
SCHEDULE
OF RECONCILIATION OF THE STATUTORY FEDERAL INCOME TAX BENEFIT
| | |
As
of
October 31, | | |
As
of
October
31, | |
| | |
2022 | | |
2021 | |
| Federal
statutory blended income tax rates | |
| 21 | % | |
| 21 | % |
| State
statutory income tax rate, net of federal benefit | |
| 4 | % | |
| 4 | % |
| Change in valuation
allowance | |
| 25 | % | |
| 25 | % |
| Other | |
| - | | |
| - | |
| Effective
tax rate | |
| -% | | |
| -% | |
As
of the date of this filing, the Company has not filed its 2022 federal and state corporate income tax returns. The Company expects to
file these documents as soon as practicable.
The
Act was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21% and will require the Company
to re-measure certain deferred tax assets and liabilities based on the rates at which they are anticipated to reverse in the future,
which is generally 21%. The Company adopted the new rate as it relates to the calculations of deferred tax amounts as of July 19, 2021,
the Company’s date of inception.
NOTE
8 – NOTES PAYABLE
Notes
payable as of October 31, 2022 and 2021, consisted of the following:
SCHEDULE OF NOTES PAYABLE
| | |
As of
October 31, | | |
As
of
October
31, | |
| | |
2022 | | |
2021 | |
| Notes payable – related party, net of discount | |
$ | 1,025,497 | | |
$ | 3,661,885 | |
| Notes payable – investors, net of discounts | |
| 4,137,720 | | |
| - | |
| Bridge Note, net of discounts | |
| 265,719 | | |
| - | |
| Total Notes payable | |
$ | 5,428,936 | | |
$ | 3,661,885 | |
Notes Payable – Related Party
On
September 14, 2021, the Company entered into a related party note payable with Trio LLC as part of the agreement for the purchase of
an 82.75% working interest in the SSP (see Note 1). Per the Third Amendment signed on May 27, 2022, a portion of a previous payment made
to Trio LLC was used to fund a lease extension payment to a third-party; as the payment previously made was to be used for other expenditures,
the amount used to fund the lease extension will be added to the remaining amount due to Trio LLC, increasing it from $780,000 to $1,032,512.
The Company will make the final payment of $1,032,512 at the earlier of i) the IPO or ii) April 1, 2023 (see Note 10 – Fourth
Amendment to the PSA). As of October 31, 2022, the balance of the related party note payable was $1,025,497 (net of imputed interest
of $7,015), with aggregate payments made of $2,920,000 and interest expense recognized of $120,337 during year ended October 31, 2022
(see Note 5). As of October 31, 2021, the balance of the related party note payable was $3,661,885 (net of imputed interest of $38,115),
with interest expense recognized of $38,115 during the year.
Notes Payable - Investors
On January 28, 2022, the Company
entered into a SPA with GenCap (see Note 3 and Note 6), pursuant to which (i) in exchange for $4,500,000 in consideration consisting
of $4,420,000 in cash and $80,000 in the form of a receivable to be funded in a subsequent quarter, the Company issued senior secured
convertible promissory notes (“Notes”) with an aggregate principal amount of $4,500,000, (ii) the Company issued warrants
to purchase up to 50% of the number of shares of common stock issued upon the full conversion of the Notes, and (iii) the Company agreed
to issue commitment shares (see Note 6) to the investors upon the date of the Company’s IPO. The Notes were collateralized with
a security interest in the oil and gas properties, which was to be perfected by April 28, 2022. In the event the collateral was not perfected
by April 28, 2022, the Company was required to deliver 4,500,000 shares (“Default Shares”) to the investors. The Default
Shares were initially held in escrow until the earlier of a) the granting and perfection of the security interest, b) the conversion
of the Notes upon the IPO or c) April 28, 2022. As the Company failed to perfect the security interest and no IPO occurred by April 28,
2022, the Default Shares were delivered to the investors on April 28, 2022. The shares were issued at a fair value of $0.29 per share
for an aggregate value of $1,322,933, and this amount was recognized as penalty fees related to debt on the income statement.
The
Notes have a maturity date of the earlier of January 28, 2023 or the IPO and bear interest at a rate of 8%
per annum, which is to be accrued and paid on the maturity date. If the Company’s IPO does not occur by August 1, 2022 or upon
default, the interest percentage increases to 15%
per annum. The principal and interest payable on the Notes will automatically convert into shares upon IPO. The conversion price is the
lesser of i)
the IPO price multiplied by the discount of 50% or ii) the opening price of the shares of common stock on the trading day following the
date of the IPO multiplied by the discount of 50%. The number of conversion shares is the outstanding principal amount divided
by the conversion price. Upon IPO, the debt will convert into a fixed dollar amount of $9,000,000
of a variable number of shares. Additionally, the Company has the option to prepay the Notes at any time after the original issue
date prior to the maturity date at an amount equal to 125%
of the prepayment amount.
The
commitment shares are to be issued upon the date of the IPO. The number of commitment shares to be issued is a variable number of shares
for a fixed total dollar amount of $1,125,000, which is 25% of the aggregate Notes principal balance divided by the offering price of
the IPO. No shares will be issued if there is no IPO.
The
warrants issued per the SPA are exercisable into up to 50% of the number of shares of common stock issued upon full conversion of the
Notes, with an exercise price equal to the conversion price. Accordingly, upon IPO, warrant holders can receive up to $4,500,000 worth
of common stock in exchange for a cash payment of 50% of the IPO price, or up to $2,250,000. The Company determined the warrants are
equity classified and used a third party to perform a valuation to estimate their fair market value at January 28, 2022. The factors
used to determine their fair value, which was $994,091, were a term of 3 years, volatility of 92%, a share price based on comparable
companies and an exercise price of 50% of the stock price upon the Company’s IPO.
The
Company also incurred debt issuance costs of $505,000 in connection with the issuance of the Notes, Default Shares and warrants. The
values of the warrants and debt issuance costs are recorded as debt discounts and amortized over the life of the Notes, which is one
year.
As
of October 31, 2022, the balance of the Notes payable was $4,137,720, with interest expense of $1,136,811 for the year ended October
31, 2022.
See
Note 10 for further information regarding this SPA.
Bridge
Note
During
September 2022, the Company entered into an agreement or bridge note (“Bridge Note”) with three investors; the Bridge Note
includes original issue discount senior notes (“Notes”) with gross proceeds of $444,000, a 10% Original Issue Discount (“OID”)
of $44,000 and debt issuance costs of $70,438, for net proceeds of $329,562 to the Company. The Bridge Note includes pre-funded warrants
that permit the investors to purchase a number of shares of the Company’s common stock (equal to 100% of the original principal amount of the Notes), which can be exercised from the date of the warrant agreement to five years from the date of the Company’s
IPO at an exercise price of $0.01. The Notes have a maturity date of the earlier of six months from the closing of this financing or
the completion of the IPO. The Notes bear interest at 8% per annum, which will be waived if the Company completes a successful IPO within
90 days of the closing of financing; in the event of default, the interest percentage will increase to 15% per annum.
The
Company also issued pre-funded warrants in connection with the Bridge Note to purchase a number of shares equal to the number of dollars
of the Notes at an exercise price of $0.01 per share; the warrants can be exercised at any time from the date of the warrant agreement
to five years from the date of the completion of the IPO. The Company determined the warrants are liability classified and a Black-Scholes
option pricing model to estimate their fair market value at September 20, 2022. The factors used to determine their fair value, which
was $114,883, were a term of 5 years, volatility of 98%, a share price based on a prior period valuation, a risk rate of 3.75% and an
exercise price of $0.01.
The
Company also incurred debt issuance costs of $70,438 in connection with the issuance of the Notes and warrants. The values of the OID,
warrants and debt issuance costs are recorded as debt discounts and amortized over the life of the Notes as interest expense. As of October
31, 2022, the balance of the Notes payable was $265,719, with interest expense of $51,040 for the year ended October 31, 2022.
NOTE 9 – STOCKHOLDERS’ EQUITY
Common Shares
The Company is authorized to issue an aggregate
of 500,000,000 shares. The authorized capital stock is divided into: (i) 490,000,000 shares of common stock having a par value of $0.0001
per share and (ii) 10,000,000 shares of preferred stock having a par value of $0.0001 per share.
As of October 31, 2022, the
Company has issued 5,530,000 shares to its founders at par value. As of October 31, 2022, the Company has yet to receive a portion of
these proceeds and $10 is recorded as a subscription receivable.
On September 14, 2021, the
Company issued 4,900,000 shares of the Company’s common stock as part of the consideration for the SSP assets. The shares were
issued at cost of $0.70 per share, based on the fair value of the consideration paid (see Note 1 and Note 4).
During September 2021, the
Company sold 577,800 shares to various accredited investors for $1.00 per share in exchange for aggregate cash proceeds of $577,800.
Beginning in October 2021,
the Company entered into various subscription agreements in connection with a private offering of shares of the Company’s common
stock at a price of $2.00 per share. The Company has issued a total of 65,000 shares for aggregate cash proceeds of $130,000; as of October
31, 2022, the Company has yet to receive a portion of these proceeds and $10,000 is recorded as a subscription receivable.
On April 28, 2022, the Company
issued 4,500,000 shares of its $0.0001 par common stock at a price of $0.29 per share for a total aggregate fair value of $1,322,933
to GenCap as default shares in connection with the SPA (see Note 3, Note 6 and Note 8).
On July 11, 2022, the Company
issued 60,000 shares of its $0.0001 par common stock to each of its five outside Directors for a total aggregate amount of 300,000 shares.
The shares, or RSUs, vest in full upon the six-month anniversary of the IPO, subject to the directors’ continued service on the
vesting date; upon issuance, the shares will be fully paid and non-assessable. The RSUs were recorded at a fair value of $0.29 per share
for a total value of $88,200. The Company will begin to recognize stock-based compensation expense for the RSUs upon successful completion
of its IPO.
On October 17, 2022, the Company
issued 1,100,000 restricted shares to two of its executives pursuant to the Plan (see Note 5). As the Plan was not adopted until October
17, 2022 (see Note 6), these shares will be recorded as of that date at a fair value of $0.29 per share; such value was calculated via
a third-party valuation performed using income and market methods, as well as a discounted cash flow method, with the terminal value
using a market multiples method, adjusted for a lack of marketability. As of October 31, 2022, the Company recorded 1,100,000 restricted
shares at a fair value of $323,400 and stock-based compensation expense of $6,202, with unrecognized expense of $317,198.
Warrants
In
January 2022, the Company entered into a SPA with GenCap, which has warrants attached that are exercisable into up to 50% of the number
of shares of common stock issued upon full conversion of the Notes. The Company determined the warrants are equity classified and used
a third party to perform a valuation to estimate their fair market value at January 28, 2022, which was $994,091. The factors used to
determine their fair value were a term of 3 years, volatility of 92%, a share price based on comparable companies and an exercise price
of 50% of the stock price upon the Company’s IPO. See Note 10 for further information regarding this SPA.
NOTE
10 – SUBSEQUENT EVENTS
In
accordance with ASC 855 - Subsequent Events, which establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events and transactions
that occurred after October 31, 2022 through the date the financial statements are available for issuance. During this period, the Company
did not have any material reportable subsequent events other than the events disclosed below.
Fourth
Amendment to the PSA
In
December 2022, the Company and Trio LLC entered into the Fourth Amendment to the Purchase and Sale Agreement (the “Fourth
Amendment”) related to the acquisition of the SSP (see Note 1). The Fourth Amendment provides for the following:
| ● | The
Company was granted a 120-day option (commencing on January 1, 2023) to acquire
any or all of three assets currently owned in part by Trio LLC. These potential assets are
all located in California and will be evaluated by KLS Petroleum Consulting LLC for a detailed
analyses and estimations of the oil and gas reserves and of the fair market values of each
of these assets. |
| ● | The
Company has agreed to pay $60,529 to Trio LLC for an additional 3.026471% working interest
in the South Salinas Project. |
| ● | The
Company agreed to start the process of pursuing and consummating additional lease acquisitions
in the areas within and around the South Salinas Project Area; such acquisitions shall be
for an aggregate purchase price not to exceed $100,000. |
| ● | The Company authorized Trio LLC to engage the services of a contractor
to do road access work and dirt-moving work (estimated to cost approximately $80,000) that is necessary before the commencement of drilling
the HV-1 well. |
| ● | The
Company agreed to finalize seven employment agreements covering certain of the Company’s
post-IPO officers and staff; the proposed terms, salaries and certain other important provisions
of each of these agreements have been submitted to and are currently being considered and
reviewed by the Company’s Compensation Committee. |
| ● | The
Company agreed, commencing May 1, 2022, to accrue a monthly consulting fee of $35,000, due
and payable by the Company to Trio LLC no later than two weeks following the closing date
of Company’s IPO. This fee is intended to cover the work being done for the Company
by Trio LLC’s employees prior to the closing date of the Company’s IPO. |
| ● | The
Company’s due date for its final payment of $1,032,512 to Trio LLC was extended
to be the earlier of i) the IPO or ii) March 1, 2023. |
On February 24, 2023,
the Company and Trio LLC entered into a due date extension letter, extending the due date for its final payment to Trio LLC from March
1, 2023 until April 1, 2023.
Common
Stock and Warrant Offering
In
December 2022, the Company entered into subscription agreements with two accredited investors for the aggregate issuance of 400,000 common
shares, as well as warrants to purchase additional shares up to the initial subscription amount, for aggregate gross cash proceeds of
$400,000. The common shares are $0.0001 par value and have a purchase price of $1.00 per share; the warrants are exercisable for two
years and have an exercise price equal to fifty percent of the price per share the Company sells its common shares in its IPO.
Amendment
to the SPA
On
January 23, 2023, the Company entered into an amendment to the SPA (see Note 2, Note 3, Note 6, Note 8 and Note 9), which initially
changed the maturity date from January 28, 2023 to February 28, 2023 and again from February 28, 2023 to March 28, 2023.
TRIO
PETROLEUM CORP.
CONDENSED
BALANCE SHEETS
| | |
July 31, | | |
October 31, | |
| | |
2023 | | |
2022 | |
| | |
(unaudited) | | |
| |
| ASSETS | |
| | | |
| | |
| Current assets: | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 1,506,028 | | |
$ | 73,648 | |
| Prepaid expenses and other receivables | |
| 124,290 | | |
| 35,000 | |
| Deferred offering costs | |
| - | | |
| 1,643,881 | |
| Total current assets | |
| 1,630,318 | | |
| 1,752,529 | |
| | |
| | | |
| | |
| Oil and gas properties - not subject to amortization | |
| 9,045,333 | | |
| 5,836,232 | |
| Advance to operators | |
| 494,950 | | |
| 1,900,000 | |
| Total assets | |
$ | 11,170,601 | | |
$ | 9,488,761 | |
| | |
| | | |
| | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
| Current liabilities: | |
| | | |
| | |
| Accounts payable and accrued liabilities | |
$ | 819,926 | | |
$ | 1,164,055 | |
| Asset retirement obligations – current | |
| 2,778 | | |
| 2,778 | |
| Notes payable - investors, net of discounts | |
| - | | |
| 4,403,439 | |
| Notes payable - related party, net of discounts | |
| - | | |
| 1,025,497 | |
| Warrants liability | |
| - | | |
| 114,883 | |
| Total current liabilities | |
| 822,704 | | |
| 6,710,652 | |
| | |
| | | |
| | |
| Long-term liabilities: | |
| | | |
| | |
| Franchise tax accrual | |
| 3,750 | | |
| 9,450 | |
| Asset retirement obligations, net of current portion | |
| 47,619 | | |
| 45,535 | |
| Total Long-term liabilities | |
| 51,369 | | |
| 54,985 | |
| Total liabilities | |
| 874,073 | | |
| 6,765,637 | |
| | |
| | | |
| | |
| Commitments and Contingencies (Note 7) | |
| - | | |
| - | |
| | |
| | | |
| | |
| Stockholders’ Equity: | |
| | | |
| | |
| Preferred stock, $0.0001 par value; 10,000,000 shares authorized; -0- shares issued and outstanding at July 31, 2023 and October 31, 2022, respectively | |
| - | | |
| - | |
| | |
| | | |
| | |
| Common stock, $0.0001 par value; 490,000,000 shares authorized; 29,621,516 and 16,972,800 shares issued and outstanding as of July 31, 2023 and October 31, 2022, respectively | |
| 2,962 | | |
| 1,697 | |
| Stock subscription receivable | |
| (10,010 | ) | |
| (10,010 | ) |
| Additional paid-in capital | |
| 19,430,871 | | |
| 6,633,893 | |
| Accumulated deficit | |
| (9,127,295 | ) | |
| (3,902,456 | ) |
| Total stockholders’ equity | |
| 10,296,528 | | |
| 2,723,124 | |
| | |
| | | |
| | |
| Total liabilities and stockholders’ equity | |
$ | 11,170,601 | | |
$ | 9,488,761 | |
The
accompanying notes are an integral part of these unaudited condensed financial statements.
TRIO
PETROLEUM CORP.
CONDENSED
STATEMENTS OF OPERATIONS
(Unaudited)
| | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| | |
For the Three Months Ended July 31, | | |
For the Nine Months Ended July 31, | |
| | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| | |
| | |
| | |
| | |
| |
| Revenue | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| | |
| | | |
| | | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | | |
| | | |
| | |
| Exploration expense | |
$ | 199,637 | | |
$ | 2,638 | | |
$ | 225,052 | | |
$ | 28,669 | |
| General and administrative expenses | |
| 1,171,256 | | |
| 219,524 | | |
| 2,215,775 | | |
| 685,565 | |
| Stock-based compensation expense | |
| 785,962 | | |
| - | | |
| 896,947 | | |
| - | |
| Accretion expense | |
| 695 | | |
| 695 | | |
| 2,084 | | |
| 2,084 | |
| Total operating expenses | |
| 2,157,550 | | |
| 222,857 | | |
| 3,339,858 | | |
| 716,318 | |
| | |
| | | |
| | | |
| | | |
| | |
| Loss from operations | |
| (2,157,550 | ) | |
| (222,857 | ) | |
| (3,339,858 | ) | |
| (716,318 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Other expenses: | |
| | | |
| | | |
| | | |
| | |
| Interest expense | |
| - | | |
| 485,293 | | |
| 746,930 | | |
| 1,046,106 | |
| Penalty fees | |
| - | | |
| - | | |
| - | | |
| 1,322,933 | |
| Loss on settlement | |
| 13,051 | | |
| - | | |
| 13,051 | | |
| - | |
| Loss on note conversion | |
| - | | |
| - | | |
| 1,125,000 | | |
| - | |
| Total other expenses | |
| 13,051 | | |
| 485,293 | | |
| 1,884,981 | | |
| 2,369,039 | |
| | |
| | | |
| | | |
| | | |
| | |
| Loss before income taxes | |
| (2,170,601 | ) | |
| (708,150 | ) | |
| (5,224,839 | ) | |
| (3,085,357 | ) |
| Provision for income taxes | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | |
| Net loss | |
$ | (2,170,601 | ) | |
$ | (708,150 | ) | |
$ | (5,224,839 | ) | |
$ | (3,085,357 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Basic and Diluted Net Loss per Common Share | |
| | | |
| | | |
| | | |
| | |
| Basic | |
$ | (0.08 | ) | |
$ | (0.05 | ) | |
$ | (0.25 | ) | |
$ | (0.21 | ) |
| Diluted | |
$ | (0.08 | ) | |
$ | (0.05 | ) | |
$ | (0.25 | ) | |
$ | (0.21 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Weighted Average Number of Common Shares Outstanding | |
| | | |
| | | |
| | | |
| | |
| Basic | |
| 26,556,760 | | |
| 15,641,278 | | |
| 20,748,826 | | |
| 14,375,071 | |
| Diluted | |
| 26,556,760 | | |
| 15,641,278 | | |
| 20,748,826 | | |
| 14,375,071 | |
The
accompanying notes are an integral part of these unaudited condensed financial statements.
TRIO
PETROLEUM CORP.
CONDENSED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
| | |
Shares | | |
Amount | | |
Receivable | | |
Capital | | |
Deficit | | |
Equity | |
| | |
| | |
| | |
Stock | | |
Additional | | |
| | |
Total | |
| | |
Common Stock | | |
Subscription | | |
Paid-in | | |
Accumulated | | |
Stockholders’ | |
| | |
Shares | | |
Amount | | |
Receivable | | |
Capital | | |
Deficit | | |
Equity | |
| Balance at April 30, 2023 | |
| 24,799,202 | | |
$ | 2,480 | | |
$ | (10,010 | ) | |
$ | 16,752,597 | | |
$ | (6,956,694 | ) | |
$ | 9,788,373 | |
Issuance of common stock upon exercise of warrants,
net | |
| 2,499,466 | | |
| 245 | | |
| - | | |
| 1,812,390 | | |
| - | | |
| 1,812,635 | |
| Issuance of common stock for services | |
| 48,000 | | |
| 5 | | |
| - | | |
| 80,154 | | |
| - | | |
| 80,159 | |
| Issuance of restricted stock units under the Equity Incentive Plan | |
| 700,000 | | |
| 70 | | |
| - | | |
| (70 | ) | |
| - | | |
| - | |
| Issuance of common stock for warrants that can be exercised per the Resale
S-1/A | |
| 1,199,848 | | |
| 120 | | |
| - | | |
| (120 | ) | |
| - | | |
| - | |
| Stock-based compensation | |
| 425,000 | | |
| 42 | | |
| - | | |
| 785,920 | | |
| - | | |
| 785,962 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,170,601 | ) | |
| (2,170,601 | ) |
| Balance at July 31, 2023 | |
| 29,621,516 | | |
$ | 2,962 | | |
$ | (10,010 | ) | |
$ | 19,430,871 | | |
$ | (9,127,295 | ) | |
$ | 10,296,528 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance at October 31, 2022 | |
| 16,972,800 | | |
$ | 1,697 | | |
$ | (10,010 | ) | |
$ | 6,633,893 | | |
$ | (3,902,456 | ) | |
$ | 2,723,124 | |
| Issuance of common stock for cash, net | |
| 400,000 | | |
| 40 | | |
| - | | |
| 371,960 | | |
| - | | |
| 372,000 | |
| Issuance of conversion shares related to the SPA | |
| 5,038,902 | | |
| 504 | | |
| - | | |
| 5,164,371 | | |
| - | | |
| 5,164,875 | |
| Issuance of commitment shares related to the SPA | |
| 375,000 | | |
| 38 | | |
| - | | |
| 1,124,962 | | |
| - | | |
| 1,125,000 | |
| Issuance of common shares in IPO, net of underwriting discounts and offering costs | |
| 2,000,000 | | |
| 200 | | |
| - | | |
| 3,342,426 | | |
| - | | |
| 3,342,626 | |
| Issuance of pre-funded warrants | |
| - | | |
| - | | |
| - | | |
| 4,000 | | |
| - | | |
| 4,000 | |
| Issuance of common stock upon exercise of warrants, net | |
| 2,449,466 | | |
| 245 | | |
| - | | |
| 1,812,390 | | |
| - | | |
| 1,812,635 | |
| Issuance of common stock for services, net | |
| 48,000 | | |
| 5 | | |
| - | | |
| 80,155 | | |
| - | | |
| 80,160 | |
| Issuance of restricted stock units under the Equity Incentive Plan | |
| 700,000 | | |
| 70 | | |
| - | | |
| (70 | ) | |
| - | | |
| - | |
| Issuance of common stock for warrants that can be exercised per the Resale
S-1/A | |
| 1,199,848 | | |
| 120 | | |
| - | | |
| (120 | ) | |
| - | | |
| - | |
| Stock-based compensation | |
| 437,500 | | |
| 43 | | |
| - | | |
| 896,904 | | |
| - | | |
| 896,947 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (5,224,839 | ) | |
| (5,224,839 | ) |
| Balance at July 31, 2023 | |
| 29,621,516 | | |
$ | 2,962 | | |
$ | (10,010 | ) | |
$ | 19,430,871 | | |
$ | (9,127,295 | ) | |
$ | 10,296,528 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance at April 30, 2022 | |
| 15,572,800 | | |
$ | 1,557 | | |
$ | (10,010 | ) | |
$ | 6,596,514 | | |
$ | (2,479,271 | ) | |
$ | 4,108,790 | |
| Issuance of restricted stock units to outside directors | |
| 300,000 | | |
| 30 | | |
| - | | |
| (30 | ) | |
| - | | |
| - | |
| Interest imputed on note payable for acquisition of unproved oil and gas properties | |
| - | | |
| - | | |
| - | | |
| 31,317 | | |
| - | | |
| 31,317 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (708,150 | ) | |
| (708,150 | ) |
| Balance at July 31, 2022 | |
| 15,872,800 | | |
$ | 1,587 | | |
$ | (10,010 | ) | |
$ | 6,627,801 | | |
$ | (3,187,421 | ) | |
$ | 3,431,957 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance at October 31, 2021 | |
| 10,982,800 | | |
$ | 1,098 | | |
$ | (50,545 | ) | |
$ | 4,202,021 | | |
$ | (102,064 | ) | |
$ | 4,050,510 | |
| Issuance of founders’ shares | |
| 80,000 | | |
| 8 | | |
| 535 | | |
| - | | |
| - | | |
| 543 | |
| Issuance of security interest shares to investors | |
| 4,500,000 | | |
| 450 | | |
| - | | |
| 1,322,483 | | |
| - | | |
| 1,322,933 | |
| Issuance of common stock for cash, net | |
| 10,000 | | |
| 1 | | |
| 40,000 | | |
| 19,999 | | |
| - | | |
| 60,000 | |
| Issuance of warrants in connection with investor financing | |
| - | | |
| - | | |
| - | | |
| 994,091 | | |
| - | | |
| 994,091 | |
| Issuance of restricted stock units to outside directors | |
| 300,000 | | |
| 30 | | |
| - | | |
| (30 | ) | |
| - | | |
| - | |
| Interest imputed on note payable for acquisition of unproved oil and gas properties | |
| - | | |
| - | | |
| - | | |
| 89,237 | | |
| - | | |
| 89,237 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (3,085,357 | ) | |
| (3,085,357 | ) |
| Balance at July 31, 2022 | |
| 15,872,800 | | |
$ | 1,587 | | |
$ | (10,010 | ) | |
$ | 6,627,801 | | |
$ | (3,187,421 | ) | |
$ | 3,431,957 | |
The
accompanying notes are an integral part of these unaudited condensed financial statements.
TRIO PETROLEUM CORP.
CONDENSED
STATEMENTS OF CASH FLOWS
(Unaudited)
| | |
2023 | | |
2022 | |
| | |
For the Nine Months Ended July 31, | |
| | |
2023 | | |
2022 | |
| | |
| | |
| |
| CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | |
| Net loss | |
$ | (5,224,839 | ) | |
$ | (3,085,357 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
| Bad debt expense | |
| 25,000 | | |
| - | |
| Accretion expense | |
| 2,084 | | |
| 2,084 | |
| Conversion of SPA | |
| 1,125,000 | | |
| - | |
| Amortization of debt discount | |
| 432,693 | | |
| 772,318 | |
| Write-off of SPA receivable | |
| - | | |
| 80,000 | |
| Imputed interest | |
| - | | |
| 89,237 | |
| Stock-based compensation | |
| 896,947 | | |
| - | |
| Penalty fees | |
| - | | |
| 1,322,933 | |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Prepaid expenses and other receivables | |
| (114,290 | ) | |
| (25,206 | ) |
| Accounts payable and accrued liabilities | |
| 315,045 | | |
| 418,938 | |
| Net cash used in operating activities | |
| (2,542,360 | ) | |
| (425,053 | ) |
| | |
| | | |
| | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
| Other capital expenditures for unproved oil and gas properties | |
| (249,520 | ) | |
| - | |
| Drilling costs for exploratory well | |
| (2,959,580 | ) | |
| - | |
| Advances to operators | |
| 1,405,050 | | |
| - | |
| Net cash used in investing activities | |
| (1,804,050 | ) | |
| - | |
| | |
| | | |
| | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
| Proceeds from issuance of common stock, net | |
| 452,160 | | |
| 60,543 | |
| Proceeds from notes payable – investors | |
| - | | |
| 4,420,000 | |
| Repayment of notes payable | |
| (1,472,512 | ) | |
| (2,920,000 | ) |
| Proceeds from issuance of common stock in IPO | |
| 6,000,000 | | |
| - | |
| Cash paid for debt issuance costs | |
| - | | |
| (505,000 | ) |
| Proceeds from exercise of warrants, net | |
| 1,812,635 | | |
| - | |
| Cash paid for deferred offering costs | |
| (1,013,493 | ) | |
| (667,843 | ) |
| Net cash provided by financing activities | |
| 5,778,790 | | |
| 387,700 | |
| | |
| | | |
| | |
| NET CHANGE IN CASH | |
| 1,432,380 | | |
| (37,353 | ) |
| Cash - Beginning of period | |
| 73,648 | | |
| 78,877 | |
| Cash - End of period | |
$ | 1,506,028 | | |
$ | 41,524 | |
| | |
| | | |
| | |
| Supplemental disclosures of cash flow information: | |
| | | |
| | |
| Cash paid for interest | |
$ | - | | |
$ | - | |
| Cash paid for income taxes | |
$ | - | | |
$ | - | |
| | |
| | | |
| | |
| SUPPLEMENTAL CASH FLOW INFORMATION: | |
| | | |
| | |
| Non-cash investing and financing activities: | |
| | | |
| | |
| Issuance of warrants (equity classified) | |
$ | - | | |
$ | 994,901 | |
| Issuance of RSUs | |
$ | 70 | | |
$ | 30 | |
| Issuance of common stock
for warrants that can be exercised per the Resale S-1/A | |
$ | 120 | | |
$ | - | |
| Issuance of pre-funded warrants | |
$ | 4,000 | | |
$ | - | |
The
accompanying notes are an integral part of these unaudited condensed financial statements.
TRIO
PETROLEUM CORP.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ENDED JULY 31, 2023 AND 2022
NOTE
1 – NATURE OF THE ORGANIZATION AND BUSINESS
Company
Organization
Trio
Petroleum Corp. (“Trio Petroleum” or the “Company”) was incorporated in the state of Delaware on July 19, 2021.
The Company is engaged in the exploration and development of the South Salinas Project (“SSP”), an oil and gas
property located in Monterey County, California, which it acquired from Trio Petroleum, LLC (“Trio LLC”). The Company is
headquartered in Bakersfield, California, with its principal offices located at 5401 Business Park, Suite 115, Bakersfield, CA, 93309.
Acquisition
of South Salinas Project
On
September 14, 2021, the Company entered into a Purchase and Sale Agreement (“PSA”) with Trio LLC to acquire an
82.75% working interest in the SSP; the working interest includes the purchased percentage of the SSP’s leases, wells and inventory
in exchange for $300,000 cash, a non-interest-bearing note payable of $3,700,000 due to Trio LLC on December 17, 2021 (see Note 6 and
Note 8) and 4,900,000 shares of the Company’s $0.0001 par value common stock (see Note 5 and Note 9). At the time of the acquisition,
this share issuance constituted 45% of the total number of issued shares of the Company. The Company accounted for the purchase as an
asset acquisition, as prescribed in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
805 – Business Combinations. The assets and associated asset retirement obligations (“ARO”) were recorded based
on relative fair value at the estimated fair value of the consideration paid (see Note 5). In April 2023, the Company purchased an additional
3% working interest in the SSP; see Note 5 for further information. As of July 31, 2023 and October 31, 2022, there were no proved reserves
attributable to the approximate 9,300 acres of the property.
Initial
Public Offering
The
Company’s Registration Statement (Amendment No 9) on Form S-1/A was filed with the SEC on March 24, 2023; its Initial Public
Offering was declared effective on April 17, 2023 and closed on April 20, 2023 (collectively, the “Offering” or
“IPO”). The Company sold 2,000,000
shares of its common stock for total gross proceeds of $6,000,000,
which is described more fully in Note 4.
Emerging
Growth Company
The
Company is an “emerging growth company,” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart
Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting
requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not
being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, reduced disclosure
obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding
a nonbinding advisory vote on executive compensation and approval of any golden parachute payments not previously approved. Further,
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting
standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do
not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting
standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements
that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of
such extended transition period which means that when a standard is issued or revised and it has different application dates for public
or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies
adopt the new or revised standard. This may make comparison of the Company’s condensed financial statements with another public
company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition
period difficult or impossible because of the potential differences in accounting standards used.
NOTE
2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (“US GAAP”). Amounts presented in the condensed balance sheet as of October 31, 2022 are derived from our
audited financial statements as of that date. The unaudited condensed financial statements as of and for the three and nine month periods
ended July 31, 2023 and 2022 have been prepared in accordance with generally accepted accounting principles in the United States of America
(“U.S. GAAP”) and the interim reporting rules of the Securities and Exchange Commission(“SEC”) and should be
read in conjunction with the audited financial statements and notes thereto contained in the Company’s Registration Statement (Amendment
No 9) on Form S-1/A filed with the SEC on March 24, 2023. In the opinion of management, all adjustments, consisting of normal recurring
adjustments (unless otherwise indicated), necessary for a fair presentation of the financial position and the results of operations for
the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative
of the results to be expected for the full year.
Use
of Estimates
The
preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, equity-based transaction and disclosure of contingent assets and liabilities at the date of
the financial statements, and the revenue and expenses during the reporting period.
Making
estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of
a condition, situation or set of circumstances that existed at the date of the financial statement, which management considered in formulating
its estimate, could change in the near term due to one or more future confirming events. Some of the more significant estimates required
to be made by management include estimates of oil and natural gas reserves (when and if assigned) and related present value estimates
of future net cash flows therefrom, the carrying value of oil and natural gas properties, accounts receivable, bad debt expense, ARO
and the valuation of equity-based transactions. Accordingly, actual results could differ significantly from those estimates.
Cash
and cash equivalents
The
Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents.
The Company had no cash equivalents as of July 31, 2023 and October 31, 2022.
Prepaid
Expenses
Prepaid
expenses consist primarily of prepaid services which will be expensed as the services are provided within twelve months. As of July 31,
2023 and October 31, 2022, the balances of the prepaids account were $124,290 and $35,000, respectively.
Deferred
Offering Costs
Deferred
offering costs consist of professional fees, filing, regulatory and other costs incurred through the balance sheet date that are directly
related to the planned IPO (see Note 4). As of July 31, 2023 and October 31, 2022, offering costs
in the aggregate of $0 and $1,643,881, respectively, were deferred.
Debt
Issuance Costs
Costs
incurred in connection with the issuance of the Company’s debt have been recorded as a direct reduction against the debt and amortized
over the life of the associated debt as a component of interest expense. As of July 31, 2023 and October 31, 2022, the Company recorded
no debt issuance costs; as of July 31, 2023 and July 31, 2022, the Company recorded $0 and $126,250 in non-cash interest expense related
to debt issuance costs.
Oil
and Gas Assets and Exploration Costs – Successful Efforts
The
Company is in the exploration stage and has not yet realized any revenues from its operations. It applies the successful efforts
method of accounting for crude oil and natural gas properties. Under this method, exploration costs such as exploratory, geological,
and geophysical costs, delay rentals and exploratory overhead are expensed as incurred. If an exploratory property provides evidence
to justify potential development of reserves, drilling costs associated with the property are initially capitalized, or suspended,
pending a determination as to whether a commercially sufficient quantity of proved reserves can be attributed to the area as a
result of drilling. At the end of each quarter, management reviews the status of all suspended exploratory property costs
considering ongoing exploration activities; in particular, whether the Company is making sufficient progress in its ongoing
exploration and appraisal efforts. If management determines that future appraisal drilling or development activities are unlikely to
occur, associated exploratory well costs are expensed.
Costs
to acquire mineral interests in crude oil and/or natural gas properties, drill and equip exploratory wells that find proved reserves
and drill and equip development wells are capitalized. Acquisition costs of unproved leaseholds are assessed for impairment during the
holding period and transferred to proven crude oil and/or natural gas properties to the extent associated with successful exploration
activities. Significant undeveloped leases are assessed individually for impairment, based on the Company’s current exploration
plans, and a valuation allowance is provided if impairment is indicated. Capitalized costs from successful exploration and development
activities associated with producing crude oil and/or natural gas leases, along with capitalized costs for support equipment and facilities,
are amortized to expense using the unit-of-production method based on proved crude oil and/or natural gas reserves on a field-by-field
basis, as estimated by qualified petroleum engineers. As of July 31, 2023 and October 31, 2022, all of the Company’s oil and gas
properties were classified as unproved properties and were not subject to depreciation, depletion and amortization.
Unproved
oil and natural gas properties
Unproved
oil and natural gas properties consist of costs incurred to acquire unproved leases. Unproved lease acquisition costs are capitalized
until the lease expires or when the Company specifically identifies a lease that will revert to the lessor, at which time it charges
the associated unproved lease acquisition costs to exploration costs.
Unproved
oil and natural gas properties are not subject to amortization and are assessed periodically for impairment on a property-by-property
basis based on remaining lease terms, drilling results or future plans to develop acreage. All of the Company’s natural gas properties
were classified as unproved as of July 31, 2023 and October 31, 2022; see further discussion in Note 5.
Impairment
of Other Long-lived Assets
The
Company reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the
historical cost-carrying value of an asset may no longer be appropriate. The Company assesses the recoverability of the carrying value
of the asset by estimating the future net undiscounted cash flows expected to result from the asset, including eventual disposition.
If the future net undiscounted cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the
difference between the asset’s carrying value and estimated fair value. With regards to oil and gas properties, this assessment
applies to proved properties.
As
of July 31, 2023 and October 31, 2022, the Company had no impairment of long-lived assets.
Asset
Retirement Obligations
ARO
consists of future plugging and abandonment expenses on oil and natural gas properties. In connection with the SSP acquisition described
above, the Company acquired the plugging and abandonment liabilities associated with six non-producing wells. The fair value of the ARO
was recorded as a liability in the period in which the wells were acquired with a corresponding increase in the carrying amount of oil
and natural gas properties not subject to impairment. The Company plans to utilize the six wellbores acquired in the SSP acquisition
in future exploration activities. The liability is accreted for the change in its present value each period based on the expected dates
that the wellbores will be required to be plugged and abandoned. The capitalized cost of ARO is included in oil and gas properties and
is a component of oil and gas property costs for purposes of impairment and, if proved reserves are found, such capitalized costs will
be depreciated using the units-of-production method. The asset and liability are adjusted for changes resulting from revisions to the
timing or the amount of the original estimate when deemed necessary. If the liability is settled for an amount other than the recorded
amount, a gain or loss is recognized.
Components
of the changes in ARO are shown below:
SCHEDULE OF COMPONENTS OF CHANGES IN ARO
| ARO, ending balance – October 31, 2022 | |
$ | 48,313 | |
| Accretion expense | |
| 2,084 | |
| ARO, ending balance – July 31, 2023 | |
| 50,397 | |
| Less: ARO – current | |
| 2,778 | |
| ARO, net of current portion – July 31, 2023 | |
$ | 47,619 | |
Related
Parties
Related
parties are directly or indirectly related to the Company, through one or more intermediaries and are in control, controlled by, or under
common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate
families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls
or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might
be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. On September 14, 2021,
the Company acquired an 82.75% working interest (which was subsequently increased to an 85.75% working interest as of April 2023) in
the SSP from Trio LLC in exchange for cash, a note payable to Trio LLC and the issuance of 4.9 million shares of common stock. As of
the date of the acquisition, Trio LLC owned 45% of the outstanding shares of the Company and was considered a related party. As of July
31, 2023 and October 31, 2022, Trio LLC owned less than 1% and 29%, respectively, of the outstanding shares of the Company.
Income
Taxes
Deferred
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit
carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
The
Company utilizes ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial statements or tax returns. The Company accounts for income
taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related
financial amounts, using currently enacted tax rates. A valuation allowance is recorded when it is “more likely than not”
that a deferred tax asset will not be realized. At July 31, 2023 and October 31, 2022, the Company’s net deferred tax asset has
been fully reserved.
For
uncertain tax positions that meet a “more likely than not” threshold, the Company recognizes the benefit of uncertain tax
positions in the financial statements. The Company’s practice is to recognize interest and penalties, if any, related to uncertain
tax positions in income tax expense in the statements of operations when a determination is made that such expense is likely. The Company
is subject to income tax examinations by major taxing authorities since inception.
Fair
Value Measurements
The
carrying values of financial instruments comprising cash and cash equivalents, payables, and notes payable-related party approximate
fair values due to the short-term maturities of these instruments. The notes payable- related party is considered a level 3 measurement.
As defined in ASC 820, Fair Value Measurements and Disclosures, fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company
utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about
risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or
generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and
the lowest priority to unobservable inputs (Level 3 measurement). This fair value measurement framework applies to both initial and subsequent
measurement.
| Level
1: |
Quoted
prices are available in active markets for identical assets or liabilities as of the reporting date. |
| |
|
| Level
2: |
Pricing
inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as
of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies.
|
| |
|
| Level
3: |
Pricing
inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally
developed methodologies that result in management’s best estimate of fair value. The significant unobservable inputs used in
the fair value measurement for nonrecurring fair value measurements of long-lived assets include pricing models, discounted cash
flow methodologies and similar techniques. |
There
are no assets or liabilities measured at fair value on a recurring basis. Assets and liabilities accounted for at fair value on a non-recurring
basis in accordance with the fair value hierarchy include the initial allocation of the asset acquisition purchase price, including asset
retirement obligations, the fair value of oil and natural gas properties and the assessment of impairment.
The
fair value measurements and allocation of assets acquired are measured on a nonrecurring basis on the acquisition date using an income
valuation technique based on inputs that are not observable in the market and therefore represent Level 3 inputs. Significant inputs
used to determine the fair value include estimates of: (i) reserves; (ii) future commodity prices; (iii) operating and development costs;
and (iv) a market-based weighted average cost of capital rate. The underlying commodity prices embedded in the Company’s estimated
cash flows are the product of a process that begins with NYMEX forward curve pricing, adjusted for estimated location and quality differentials,
as well as other factors that the Company’s management believes will impact realizable prices. These inputs require significant
judgments and estimates by the Company’s management at the time of the valuation.
The
fair value of additions to the asset retirement obligation liabilities is measured using valuation techniques consistent with the income
approach, which converts future cash flows to a single discounted amount. Significant inputs to the valuation include: (i) estimated
plug and abandonment cost per well for all oil and natural gas wells and for all disposal wells; (ii) estimated remaining life per well;
(iii) future inflation factors; and (iv) the Company’s average credit-adjusted risk-free rate. These assumptions represent Level
3 inputs.
If
the carrying amount of its proved oil and natural gas properties, which are assessed for impairment under ASC 360 – Property,
Plant and Equipment, exceeds the estimated undiscounted future cash flows, the Company will adjust the carrying amount of the oil
and natural gas properties to fair value. The fair value of its oil and natural gas properties is determined using valuation techniques
consistent with the income and market approach. The factors used to determine fair value are subject to management’s judgment and
expertise and include, but are not limited to, recent sales prices of comparable properties, the present value of future cash flows,
net of estimated operating and development costs using estimates of proved reserves, future commodity pricing, future production estimates,
anticipated capital expenditures, and various discount rates commensurate with the risk and current market conditions associated with
the expected cash flow projected. These assumptions represent Level 3 inputs.
Net
Loss Per Share
Basic
and diluted net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the
reporting period. Diluted earnings per share is computed similar to basic loss per share, except the weighted average number of common
shares outstanding are increased to include additional shares from the assumed exercise of share options, warrants and convertible notes,
if dilutive.
The
following common share equivalents are excluded from the calculation of weighted average common shares outstanding, because their inclusion
would have been anti-dilutive (see Note 9):
SCHEDULE OF WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ANTI-DILUTIVE
| | |
As of July 31, | | |
As of July 31, | |
| | |
2023 | | |
2022 | |
| Warrants (Note 7, Note 8) | |
| 500,000 | (4) | |
| 7,964,286 (1) | |
| Convertible Notes (Note 7, Note 8) | |
| - | | |
| 31,857,143 (2) | |
| Commitment Shares (Note 7, Note 8) | |
| - | | |
| 3,826,530 (3) | |
| Restricted stock units | |
| - | | |
| 300,000 (5) | |
| Total potentially anti-dilutive securities | |
| 500,000 | | |
| 43,947,959 | |
| (1) |
Balance
includes warrants issued per the Securities Purchase Agreement (“SPA”) with GPL Ventures, LLC (“GPL”), which
are exercisable into up to 50% of the number of shares of common stock issued upon full conversion of the Notes, with an exercise
price equal to the conversion price. |
| (2) |
Upon
IPO, the debt will convert into a variable number of shares; the number of conversion shares is equal to the outstanding principal
amount divided by the conversion price, which is equal to the lesser of a) the IPO price or b) the opening price of the common stock
on the first trading day after the IPO multiplied by the discount of 50%. |
| (3) |
The
number of commitment shares to be issued is a variable number of shares for a fixed total dollar amount of $1,125,000, which is 25%
of the aggregate Notes principal balance divided by the offering price of the IPO. |
| (4) |
Balance
consists of potentially anti-dilutive shares based on 1,459,878 outstanding, equity classified warrants. |
| (5) |
Balance
consists of restricted stock units granted to five outside directors. |
Environmental
Expenditures
The
operations of the Company have been, and may in the future be, affected from time to time to varying degree by changes in environmental
regulations, including those for future reclamation and site restoration costs. Both the likelihood of new regulations and their overall
effect upon the Company vary greatly and are not predictable. The Company’s policy is to meet or, if possible, surpass standards
set by relevant legislation by application of technically proven and economically feasible measures.
Environmental
expenditures that relate to ongoing environmental and reclamation programs are charged against earnings as incurred or capitalized and
amortized depending on their future economic benefits. All of these types of expenditures incurred since inception have been charged
against earnings due to the uncertainty of their future recoverability. Estimated future reclamation and site restoration costs, when
the ultimate liability is reasonably determinable, are charged against earnings over the estimated remaining life of the related business
operation, net of expected recoveries.
Recent
Accounting Pronouncements
All
recently issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.
Subsequent
Events
The
Company evaluated all events and transactions that occurred after July 31, 2023 through the date of the filing of this report. See Note
10 for such events and transactions.
NOTE
3 – GOING CONCERN AND MANAGEMENT’S LIQUIDITY PLANS
As
of July 31, 2023, the Company had $1,506,028 in its operating bank account and working capital of $807,614. To date, the Company has
been funding operations through proceeds from the issuance of common stock, financing through certain investors and its IPO, which closed
with net proceeds of $4,940,000. Upon consummation of the IPO, the Company used the net proceeds to i) repay a non-interest-bearing
note payable in the amount of $1,032,512, and ii) repay a bridge note with three investors with a principal amount of $440,000 (see Notes
7 and 8).
The
accompanying condensed financial statements have been prepared on the basis that the Company will continue as a going concern over the
next twelve months from the date of issuance of these condensed financial statements, which assumes the realization of assets and the
satisfaction of liabilities in the normal course of business. As of July 31, 2023, the Company has an accumulated deficit of $9,127,295
and has experienced losses from continuing operations. Based on the Company’s cash balance as of July 31, 2023 and projected cash
needs for the twelve months following the issuance of these condensed financial statements, management estimates that it will need to
generate sufficient sales revenue and/or raise additional capital to cover operating and capital requirements. Management will need to
raise the additional funds by issuing additional shares of common stock or other equity securities or obtaining additional debt financing.
Although management has been successful to date in raising necessary funding and obtaining financing through investors, there can be
no assurance that any required future financing can be successfully completed on a timely basis, or on terms acceptable to the Company.
Based on these circumstances, management has determined that these conditions raise substantial doubt about the Company’s ability
to continue as a going concern for the twelve months following the issuance of these condensed financial statements.
Accordingly,
the accompanying condensed financial statements have been prepared in conformity with U.S. GAAP, which contemplates continuation of the
Company as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business. The condensed
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE
4 – INITIAL PUBLIC OFFERING
The Company’s Registration Statement (Amendment No 9) on Form S-1/A
was filed with the SEC on March 24, 2023; its Initial Public Offering was declared effective on April 17, 2023 and closed on April 20,
2023 (collectively, the “Offering” or “IPO”). The Company sold 2,000,000 shares of common stock at a public offering price of $3.00 per share for gross proceeds of $6,000,000. After
deducting the underwriting commissions, discounts and offering expenses payable by the Company, it received net proceeds of approximately
$4,940,000. The Company’s common stock is listed on the NYSE American under the symbol TPET. The Company also issued warrants to
purchase 100,000 shares of common stock to the underwriters at an exercise price of $3.30 per share (110% of public offering price),
the cost of which was offset to additional paid-in capital upon IPO.
NOTE
5 – OIL AND NATURAL GAS PROPERTIES
The
following tables summarize the Company’s oil and gas activities.
SCHEDULE OF OIL AND NATURAL GAS PROPERTIES
| | |
As of July 31, | | |
As of October 31, | |
| | |
2023 | | |
2022 | |
| Oil and gas properties – not subject to amortization | |
$ | 9,045,333 | | |
$ | 5,836,232 | |
| Accumulated impairment | |
| — | | |
| — | |
| Oil and gas properties – not subject to amortization, net | |
$ | 9,045,333 | | |
$ | 5,836,232 | |
During
the three and nine months ended July 31, 2023, the Company incurred aggregated exploration costs of $199,637 and $225,052, respectively; these expenses were exploratory, geological and geophysical costs and
were expensed on the statement of operations during the applicable periods. During the three and nine months ended July 31, 2022, the Company incurred aggregated exploration costs of $2,638 and $28,669, respectively;
these costs were mainly for the purpose of the site surveys and were expensed on the statement of operations during the applicable periods.
For capitalized costs, the Company incurred $1,704,081 and $3,209,101 for the three and nine months ended July 31, 2023, respectively.
Of the costs incurred during the current period, approximately $1.6 million relate to drilling the HV-1 well and approximately $0.1 million
relates to reserve analysis of the optioned assets (see Optioned Assets below); of the costs incurred during the nine-month period,
approximately $2.9 million relates to drilling the HV-1 well, approximately $0.1 million relates to reserve analysis of the optioned
assets (see Optioned Assets below) and approximately $0.2 million relates to acquisition costs. Both drilling and acquisition
costs were capitalized and are reflected in the balance of the oil and gas property as of July 31, 2023. There were no capitalized costs
incurred in the same period during 2022.
Leases
As
of July 31, 2023, the Company holds various leases related to the unproved properties of the SSP (see Note 6 and Note 7). During February
and March 2023, the Company entered into additional leases related to the unproved properties of the SSP with two groups of lessors.
The first group of leases covers 360 acres and has a term of 20 years; the Company is required to make rental payments of $25/acre per
year. The Company is currently in compliance with this requirement and has paid in advance the rental payment of approximately $11,000
for the period February 2023 – February 2024; this amount was expensed under the successful efforts method of accounting. The second
group of leases covers 307.75 acres and has a term of 20 years; the Company is required to make rental payments of $30/acre per year.
The Company is currently in compliance with this requirement and has paid in advance the rental payment of approximately $11,000 for
the period from March 2023 through March 2024; this amount was expensed under the successful efforts method of accounting.
The
Company did not record any impairment to the oil and gas property as of July 31, 2023, as all capitalized costs represent costs to acquire
unproved property leases pending further development on the balance sheet. There is no depletion related to the oil and gas property
as of July 31, 2023, as the Company does not currently have production and the acquired property is not subject to amortization as of
that date.
Optioned
Assets
On
December 22, 2022, the Company and Trio LLC entered into the Fourth Amendment to the Purchase and Sale Agreement for the SSP. Per the
terms of the Fourth Amendment, the Company was granted a 120-day option (commencing on January 1, 2023) to acquire any or all of the
following three assets currently owned in part by Trio LLC (the “Optioned Assets”). The price for this option was $150,000
(the “Option Fee”), which was paid by the Company to Trio LLC in April 2023; this amount was capitalized and is reflected
in the balance of the oil and gas property. The Optioned Assets are as follows:
| |
● |
The
Hangman Hollow Field asset with an option to acquire Trio LLC’s 44% working interest and their Operatorship; |
| |
● |
The
Kern Front Field asset with an option to acquire Trio LLC’s 22% working interest and their Operatorship; and |
| |
● |
The
Union Ave Field with an option to acquire Trio LLC’s 20% working interest and their Operatorship; |
The
Optioned Assets are all located in California. In order to evaluate the Optioned Assets, the Company engaged KLS Petroleum
Consulting, LLC (“KLSP”) to do detailed analyses and estimations of the oil and gas reserves and of the fair market
values of each of these three assets. These analyses have been completed, and notwithstanding the expiration of the option period,
the Company is still evaluating its interest in acquiring any or all the Optioned Assets. As of July 31, 2023, the Company has paid approximately $37,000
to KLSP for reserve analysis of the optioned assets; this amount has been capitalized and is reflected in the balance of the oil and
gas property on the balance sheet.
Additional
Working Interest – South Salinas Project
In
April 2023, the Company paid Trio LLC approximately $60,000 to acquire an additional 3.026471% working interest in the South Salinas
Project, of which working interest amount is one-half (1/2) of the working interest that was acquired by Trio LLC; this amount was capitalized
and is reflected in the balance of the oil and gas property.
Union
Ave Field Agreement
On
May 12, 2023, the Company announced the signing of an Acquisition Agreement to potentially acquire up to 100% of the working interest
in the Union Ave Field. The agreement is between the Company and Trio LLC, on behalf of itself as Operator and holding a 20% working
interest in Union Ave Field as well as to facilitate the remaining 80% working interest holders. As Trio LLC is partly owned and controlled
by members of Trio’s management, this would be a related party transaction, and a special committee of Trio’s board of directors
(the “Trio Special Committee”) has been formed to evaluate and negotiate the terms of this acquisition. Trio has engaged
KLSP to conduct a comprehensive analysis and valuation of the asset, which analysis has been delivered to the Company and is being evaluated
by the Trio Special Committee. As of July 31, 2023, the Company is still negotiating the terms of this acquisition.
NOTE
6 – RELATED PARTY TRANSACTIONS
Notes
Payable – Related Party
On
September 14, 2021, the Company entered into a note payable with Trio LLC as part of the agreement for the purchase of an 82.75%
working interest in the SSP (see Note 1). Per the Third Amendment signed on May 27, 2022, a portion of a previous payment made to
Trio LLC was used to fund a lease extension payment to a third-party; as the payment previously made was to be used for other
expenditures, the amount used to fund the lease extension was added to the remaining amount due to Trio LLC, increasing it from
$780,000 to
$1,032,512.
Per an extension to the Fourth Amendment to the PSA, the Company made the final payment of $1,032,512 upon
the consummation of the IPO. As of July 31, 2023 and October 31, 2022, the balance of the note payable was $0 and
$1,025,497,
respectively, with interest expense recognized of $0 and
$7,015 for
the three and nine months ended July 31, 2023, respectively. The interest expense of $19,381 and $99,517 was recognized during the
three and nine months ended July 31, 2022, respectively (see Note
8). Total payments made on the note payable for the nine months ended July 31, 2023 were $1,032,512, and for the year
ended October 31, 2022 were $2,920,000.
Restricted
Stock Units (“RSUs”) issued to Directors
On
July 11, 2022, the Company issued 60,000 shares of its $0.0001 par common stock to each of its five outside Directors with a fair value
of $0.29 per share for an aggregate grant date value of $88,200. The fair value was calculated via a third-party valuation performed
using income and market methods, as well as a discounted cash flow method, with the terminal value using a market multiples method, adjusted
for a lack of marketability. The shares, or RSUs, vest in full upon the six-month anniversary of the IPO, subject to the directors’
continued service on the vesting date; upon issuance, the shares will be fully paid and non-assessable. Upon consummation of the IPO,
the vesting period for these shares began and for the three and nine months ended July 31, 2023, the Company recognized stock-based compensation
in the amount of $44,462 and $50,262, respectively, within general and administrative expenses on the income statement, with unrecognized
expense of $37,938 as of the period ended July 31, 2023.
Restricted
Shares issued to Executives and Employees
In
February 2022, the Company entered into employee agreements with Mr. Frank Ingriselli (Chief Executive Officer or “CEO”)
and Mr. Greg Overholtzer (Chief Financial Officer or “CFO”) which, among other things, provided for the grant of restricted
shares in the amounts of 1,000,000 and 100,000, respectively, pursuant to the 2022 Equity Incentive Plan (“the Plan”). Per
the terms of the employee agreements, subject to continued employment, the restricted shares vest over a two-year period, under which
25% will vest upon the earlier of three months after the IPO or six months after the grant date. After this date, the remainder vest
in equal tranches every six months until fully vested. As the Plan was not adopted until October 17, 2022 (see Note 7), these shares
will be recorded as of that date at a fair value of $0.294 per share; such value was calculated via a third-party valuation performed
using income and market methods, as well as a discounted cash flow method, with the terminal value using a market multiples method, adjusted
for a lack of marketability (see Note 9). As of October 31, 2022, the Company recorded 1,100,000 restricted shares at a fair value of
$323,400, and for the three and nine months ended July 31, 2023, the Company recognized stock-based compensation of $40,757 and $120,943,
respectively, within general and administrative expenses on the income statement, with unrecognized expense of $196,255.
In
May 2023, the Company entered into six employee agreements which, among other things, provided for the grant of an aggregate of 700,000
restricted shares pursuant to the Plan. Per the terms of the employee agreements, subject
to continued employment, the restricted shares vest as follows: 25% of the shares will vest five months after the issuance date, after
which the remainder vest in equal tranches every six months until fully vested. The shares were recorded on the date of issuance at a
fair value of $2.15 per share for an aggregate fair value of $1,505,000, and for the three and nine months ended July 31, 2023, the Company
recognized stock-based compensation of $226,242 and $226,242, respectively, within general and administrative expenses on the income
statement, with unrecognized expense of $1,278,758 as of the period ended July 31, 2023.
Pursuant
to the Ingriselli Employment Agreement dated February 1, 2022, Mr. Ingriselli is eligible for an annual discretionary bonus; on July
20, 2023, the Company issued 200,000 restricted shares (subject to the Plan) at a fair value of $1.07 per share to Mr. Ingriselli for
an aggregate fair value of $213,000. The shares vested fully on July 24, 2023 and the Company recognized stock-based compensation of
$213,000 within general and administrative expenses on the income statement for the period ended July 31, 2023.
NOTE
7 – COMMITMENTS AND CONTINGENCIES
From
time to time, the Company is subject to various claims that arise in the ordinary course of business. Management believes that any liability
of the Company that may arise out of or with respect to these matters will not materially adversely affect the financial position, results
of operations, or cash flows of the Company.
Unproved
Property Leases
As
of July 31, 2023, the Company holds various leases related to the unproved properties of the SSP. Two of the leases are held with the
same lessor. The first lease covers 8,417 acres and is currently in “force majeure” status. On May 27, 2022, the Company
entered into an Amendment to the lease agreement which provides for an extension of the current force majeure status for an additional,
uncontested twelve months, during which the Company will be released from having to evidence to the lessor the existence of force majeure
conditions. As consideration for the granting of the lease extension, the Company paid the lessor a one-time, non-refundable payment
of $252,512; this amount was capitalized and is reflected in the balance of the oil and gas property as of October 31, 2022. The extension
period commenced on June 19, 2022. As of July 31, 2023, the validity of the lease is maintained by the drilling of the HV-1 well, which
is in production testing.
The
second lease covers 160 acres of the SSP; it is currently held by delay rental and is renewed every three years. Until drilling commences,
the Company is required to make delay rental payments of $30/acre per year. The Company is currently in compliance with this requirement
and has paid in advance the delay rental payment for the period from October 2022 through October 2023.
During
February and March of 2023, the Company entered into additional leases related to the unproved properties of the SSP with two groups
of lessors. The first group of leases covers 360 acres and has a term of 20 years; the Company is required to make rental payments of
$25/acre per year. The Company is currently in compliance with this requirement and has paid in advance the rental payment for the period
February 2023 – February 2024. The second group of leases covers 307.75 acres and has a term of 20 years; the Company is required
to make rental payments of $30/acre per year. The Company is currently in compliance with this requirement and has paid in advance the
rental payment for the period from March 2023 through March 2024.
As
of July 31, 2023, the Company assessed the unproved properties of the SSP and those adjacent to it for impairment, analyzing future drilling
plans, leasehold expiration and the existence of any known dry holes in the area. Management concluded there is no impairment allowance
required as of the balance sheet date.
Board
of Directors Compensation
On
July 11, 2022, the Company’s Board of Directors approved compensation for each of the non-employee directors of the Company, which would be effective upon the consummation of the IPO. Such compensation
is structured as
follows: an annual retainer of $50,000 cash plus an additional $10,000 for each Board committee upon which the Director serves, each
paid quarterly in arrears. Payment for this approved compensation commenced upon successful completion of the Company’s IPO and
as of July 31, 2023, the Company has recognized $78,132 in directors’ fees.
Agreements
with Advisors
On
July 28, 2022, the Company entered into an agreement with Spartan Capital Securities, LLC (“Spartan”) whereby Spartan will
serve as the exclusive agent, advisor or underwriter in any offering of securities of the Company for the term of the agreement, which
is one year. The agreement provides for a $25,000 non-refundable advance upon execution of the agreement and completion of a bridge offering
to be credited against the accountable expenses incurred by Spartan upon successful completion of the IPO, a cash fee or an underwriter
discount of 7.5% of the aggregate proceeds raised in the IPO, warrants to purchase a number of common shares equal to 5% of the aggregate
number of common shares placed in the IPO, an expense allowance of up to $150,000 for fees and expenses of legal counsel and other out-of-pocket
expenses and 1% of the gross proceeds of the IPO to Spartan for non-accountable expenses. The agreement also provides for an option to
Spartan that is exercisable within 45 days after the closing of the IPO to purchase up to an additional 15% of the total number of securities
offered by the Company in the IPO. For a period of 18 months following the July 28, 2023 expiration of the agreement, Spartan shall be entitled to receive the same 7.5% cash fee and 5% warrant coverage compensation under the “tail” terms of the agreement with respect to financing transactions the Company consummates with any party contacted or introduced by Spartan to the Company prior to the expiration of the Spartan agreement.
On
April 20, 2023, pursuant to the agreement above, the Company issued representative warrants to Spartan to purchase up to an aggregate
of 100,000
shares of common stock; these warrants may be
exercised commencing from the closing of the Offering and expiring five
years from the effective date of the registration
statement at an exercise price of $3.30
(110%
of the public offering price of the common stock).
Trio
LLC – Monthly Consulting Fee
Pursuant
to the Fourth Amendment to the PSA, the Company agreed, retroactively commencing on May 1, 2022, to accrue a monthly consulting fee
of $35,000,
due and payable by the Company to Trio LLC. This fee is intended to cover the work being done for the Company by Trio LLC’s
employees prior to the closing date of the Company’s IPO. As of July 31, 2023, the Company has accrued and paid $406,000
in fees for these services.
On
May 1, 2023, the Company entered into six employment agreements with Trio LLC employees; the agreements provide for compensation and
restricted shares pursuant to the Plan (see Note 9) with a start date of May 1, 2023, provided that each individual continues to serve
as an employee of Trio LLC on a part-time basis.
NOTE
8 – NOTES PAYABLE
Notes
payable as of July 31, 2023 and October 31, 2022 consisted of the following:
SCHEDULE OF NOTES PAYABLE
| | |
As of July 31, | | |
As of October 31, | |
| | |
2023 | | |
2022 | |
| Notes payable – related party, net of discounts | |
$ | - | | |
$ | 1,025,497 | |
| Notes payable – investors, net of discounts | |
| - | | |
| 4,137,720 | |
| Bridge Note, net of discounts | |
| - | | |
| 265,719 | |
| Total Notes payable | |
$ | - | | |
$ | 5,428,936 | |
Notes
Payable – Related Party
On
September 14, 2021, the Company entered into a note payable with Trio LLC as part of the agreement for the purchase of an 82.75%
working interest in the SSP (see Note 1). Per the Third Amendment signed on May 27, 2022, a portion of a previous payment made to
Trio LLC was used to fund a lease extension payment to a third-party; as the payment previously made was to be used for other
expenditures, the amount used to fund the lease extension was added to the remaining amount due to Trio LLC, increasing it from
$780,000 to
$1,032,512.
Per an extension to the Fourth Amendment to the PSA, the Company made the final payment of $1,032,512 upon
the consummation of the IPO. As of July 31, 2023 and October 31, 2022, the balance of the note payable was $0 and
$1,025,497,
respectively, with interest expense recognized of $0 and
$7,015 for
the three and nine months ended July 31, 2023, respectively. The interest expense of $19,381 and
$99,517 was
recognized during the three and nine months
ended July 31, 2022, respectively (see Note 6). Total payments made on the note payable for the nine months ended July 31, 2023 were $1,032,512, and for the year
ended October 31, 2022 were $2,920,000.
Notes
Payable – Investors
On
January 28, 2022, the Company entered into a SPA with GPL (see Note 3 and Note 7), pursuant to which (i) in exchange for $4,500,000 in
consideration consisting of $4,420,000 in cash and $80,000 in the form of a receivable to be funded in a subsequent quarter, the Company
issued senior secured convertible promissory notes (“Notes”) with an aggregate principal amount of $4,500,000, (ii) the Company
issued warrants to purchase up to 50% of the number of shares of common stock issued upon the full conversion of the Notes, and (iii)
the Company agreed to issue commitment shares (see Note 7) to the investors upon the date of the Company’s IPO. The Notes were
collateralized with a security interest in the oil and gas properties, which was to be perfected by April 28, 2022. In the event the
collateral was not perfected by April 28, 2022, the Company was required to deliver 4,500,000 shares (“Default Shares”) to
the investors. The Default Shares were initially held in escrow until the earlier of a) the granting and perfection of the security interest,
b) the conversion of the Notes upon the IPO or c) April 28, 2022. As the Company failed to perfect the security interest and no IPO occurred
by April 28, 2022, the Default Shares were delivered to the investors on April 28, 2022. The shares were issued at a fair value of $0.29
per share for an aggregate value of $1,322,933, and this amount was recognized as penalty fees related to debt on the income statement.
An
extension to the SPA was signed during March 2023 that extended the maturity date to April 30, 2023. The note bore interest of 8% per
annum to be accrued and paid upon maturity. Because the Company’s IPO did not occur by August 1, 2022, the interest percentage
increased to 15% per annum. The principal and interest payable on the Notes automatically converted into shares upon completion of the
IPO. The conversion price was the lesser of i) the IPO price multiplied by the discount of 50% or ii) the opening price of the common
stock on the trading day following the date of the IPO multiplied by the discount of 50%. The number of conversion shares is the outstanding
principal amount divided by the conversion price. Upon the completion of the IPO, the debt converted into 5,038,902 shares with a fair
value of $5,164,875.
The
commitment shares were issued upon the completion of the IPO. The number of commitment shares to be issued was 375,000 shares at a fair
value of $1,125,000, which is 25% of the aggregate Notes principal balance divided by the offering price of the IPO.
The
warrants issued per the SPA are exercisable into up to 50% of the number of shares of common stock issued upon full conversion of the
Notes, with an exercise price equal to the conversion price. Accordingly, upon IPO, warrant holders can receive up to $4,500,000 worth
of common stock in exchange for a cash payment of 50% of the IPO price, or up to $2,250,000. The Company determined the warrants are
equity classified and used a third party to perform a valuation to estimate their fair market value at January 28, 2022. The factors
used to determine their fair value, which was $994,091, were a term of 3 years, volatility of 92%, a share price based on comparable
companies and an exercise price of 50% of the stock price upon the Company’s IPO. The Company also incurred debt issuance costs
of $505,000 in connection with the issuance of the Notes, Default Shares and warrants. The values of the warrants and debt issuance costs
are recorded as debt discounts and amortized over the life of the Notes, which is one year.
Upon
consummation of its IPO, the Company converted the aggregate outstanding principal and accrued interest balances of $4,500,000
and $664,875,
respectively, into 5,038,902
shares of common stock; the number of conversion shares was calculated by dividing the aggregate balance of $5,164,875
by the opening trading price of its common stock on April 19, 2023 of $2.05,
with a discount applied of 50%. The Company also issued 375,000
commitment shares, the number of which was calculated by taking 25% of the outstanding principal balance of $4,500,000
and dividing it by the IPO price of $3.00
per share, with the expense for issuing the commitment shares being recognized as a loss on the income statement as of April 30,
2023. As of July 31, 2023 and October 31, 2022, the balance of the Notes payable was $0
and $4,137,720,
with interest expense of $0
and $675,405
for the three and nine months ended July 31, 2023, respectively, and interest expense of $374,773
and $762,038
for the three and nine months ended July 31, 2022, respectively.
Bridge
Note
During
September 2022, the Company entered into an agreement or bridge note (“Bridge Note”) with three investors; the Bridge Note
includes original issue discount senior notes (“Notes”) with gross proceeds of $444,000, a 10% Original Issue Discount (“OID”)
of $44,000 and debt issuance costs of $70,438, for net proceeds of $329,562 to the Company. The Bridge Note included pre-funded warrants
that permit the investors to purchase a number of shares of the Company’s common stock (equal to 100% of the original principal
amount of the Notes), which can be exercised from the date of the warrant agreement to five years from the date of the Company’s
IPO at an exercise price of $0.01. The Notes had a maturity date of the earlier of i) April 30, 2023 or ii) the completion of the IPO
(see Note 10). The Notes bore interest at 8% per annum, which would waived if the Company completed a successful IPO within 90 days of
the closing of financing; in the event of default, the interest percentage would increase to 15% per annum.
The
Company also issued pre-funded warrants in connection with the Bridge Note to purchase a number of shares equal to the number of dollars
of the Notes, or 400,000, at an exercise price of $0.01 per share; the Company determined the warrants are equity classified and can
be exercised at any time from the date of the warrant agreement to five years from the date of the completion of the IPO (see Note 9).
The Company also incurred debt issuance costs of $70,438 in connection with the issuance of the Notes and warrants. The values of the
OID, warrants and debt issuance costs are recorded as debt discounts and amortized over the life of the Notes as interest expense.
Upon
consummation of its IPO, the Company repaid the Bridge Note in the amount of $440,000 and interest was waived by the investors. As of
July 31, 2023 and October 31, 2022, the balance of the Bridge Note (which is included within the Notes payable – investors, net
of discounts line item on the balance sheet) is $0 and $265,719, respectively, with interest expense of $0 and $174,281 for the three
and nine months ended July 31, 2023, respectively.
NOTE
9 – STOCKHOLDERS’ EQUITY
Common
Shares
On
October 17, 2022, the Company issued 1,100,000 restricted shares to two of its executives pursuant to the Plan (see Note 6). As the Plan
was not adopted until October 17, 2022 (see Note 7), these shares were recorded as of that date at a fair value of $0.29 per share; such
value was calculated via a third-party valuation performed using income and market methods, as well as a discounted cash flow method,
with the terminal value using a market multiples method, adjusted for a lack of marketability. As of October 31, 2022, the Company recorded
1,100,000 restricted shares at a fair value of $323,400 and for the three and nine months ended July 31, 2023, the Company recognized
stock-based compensation of $40,757 and $120,943, respectively, within general and administrative expenses on the income statement, with
unrecognized expense of $196,255.
In
December 2022, the Company entered into subscription agreements with two accredited investors for the aggregate issuance of 400,000 common
shares for aggregate gross cash proceeds of $400,000. The common shares are $0.0001 par value and have a purchase price of $1.00 per
share.
In April 2023, the Company consummated its IPO and sold 2,000,000 shares of common stock at a public offering price of $3.00 per share for gross proceeds of $6,000,000.
On
April 20, 2023, the Company issued 12,500 shares of common stock at a fair value of $2.00 per share to consultants in exchange for services
rendered; the aggregate amount of $25,000 was recorded as stock-based compensation as of the end of the period.
On
May 1, 2023, the Company issued 700,000 restricted shares to six of its employees pursuant to the Plan (see Note 6); the shares were
recorded at a fair value of $2.15 per share for an aggregate grand date fair value of $1,505,000. As of July 31, 2023, the Company has
recorded stock-based compensation expense of $226,242 for these shares as of the end of the period.
On
May 2, 2023, June 23, 2023 and July 11, 2023, the Company issued 25,000, 100,000 and 100,000 shares of common stock, par value of $0.0001,
respectively, at a fair value of $2.10, $0.88 and $1.21, respectively, to consultants in exchange for services rendered; the aggregate
amounts of $52,500, $88,000 and $121,000, respectively, were recorded as stock-based compensation as of the end of the period.
On
June 30, 2023, the Company issued 48,000 shares of common stock, par value of $0.0001, at a fair value of $1.67 to Marcum, LLP for an
aggregate amount of $80,159 for partial satisfaction of an account payable.
On
June 30, 2023, the Company issued a Form S-1/A, which registered for resale (i) up to 3,149,314 shares of common stock, par value $0.0001 per share which the selling stockholders may acquire upon the exercise of outstanding common
warrants and (ii) up to 500,000 shares of common stock, which the selling stockholders may acquire upon the exercise of outstanding pre-funded
warrants. Such warrants were issued to the selling stockholders in connection with securities purchase agreements entered into on January
28, 2022 and September 20, 2022. The Company recorded 699,848 shares of common stock that are not exercised but registered
in accordance with their common warrant agreements and 500,000 shares of common stock that are not exercised but registered in accordance
with their pre-funded warrant agreements upon the filing of this Form S-1/A.
On
July 20, 2023, the Company issued 200,000 restricted shares pursuant to the Plan to Mr. Ingriselli (see Note 6) at a fair value of $1.07
per share for an aggregate fair value of $213,000. The shares vested fully on July 24, 2023 and the Company recognized stock-based compensation
for the full value of the shares as of the end of the period.
Warrants
SPA
with GPL Warrants
In
January 2022, the Company entered into a SPA with GPL, which has warrants attached that are exercisable into up to 50% of the number
of shares of common stock issued upon full conversion of the Notes. The Company determined the warrants are equity classified and used
a third party to perform a valuation to estimate their fair market value at January 28, 2022, which was $994,091. The factors used to
determine their fair value were a term of 3 years, volatility of 92%, a share price based on comparable companies and an exercise price
of 50% of the stock price upon the Company’s IPO.
Upon
consummation of the IPO, the Company issued an aggregate of 2,519,451
warrants to the GPL investors at an exercise price of $1.03
and an expiration date of 3
years from the date of the IPO; on July 10, 2023, the Company entered into amendments to the warrant agreements with five of the six
investors, whereby i)
the exercise price was reduced from $1.03 to $0.80 and ii) the number of warrants was increased by a factor of 1.25 or 489,893
warrants in order to induce full, immediate exercise. Accordingly, 2,449,466
warrants (original number of warrants was 1,959,573)
were exercised at an exercise price of $0.80
per share for aggregate proceeds (net of equity issuance costs of $146,938)
of $1,812,635.
The shares issued for the exercise of these warrants were registered for resale as part of the Form S-1/A filed on June 30, 2023.
The Company accounted for the amendments as warrant modifications, whereby the effect of the modifications is measured as the
difference in relative fair value immediately before the modification and after the modification; and any increase to the relative
fair value is recognized as equity issuance costs.
To
assess for the change in relative fair value, the Company performed a Black Scholes Option Model calculation to quantify the fair value
of 1,959,573 common warrants under their original terms as of the modification date using the following assumptions: a share price of
$1.43, an exercise price of $1.03, an expected term of 3.0 years, volatility of 136%, a dividend rate of 0% and a discount rate of 4.54.
The Company then performed a Black Scholes Option Model calculation to quantify the fair value of 2,449,466 common warrants with their
new modified terms as of the modification date using the following assumptions: a share price of $1.53, an exercise price of $0.80, an
expected term of 3.0 years, volatility of 136%, a dividend rate of 0% and a discount rate of 4.54. The aggregate difference of approximately
$0.3 million between the two calculated amounts was recorded as an equity issuance cost within equity during the period to account for
the change in relative fair value.
Other
Warrants
In
December 2022, the Company entered into subscription agreements with two accredited investors for the aggregate issuance of 400,000 common
shares, as well as warrants to purchase additional shares up to the initial subscription amount; the warrants are exercisable for two
years and have an exercise price equal to fifty percent of the price per share the Company sells its common shares in its IPO. The warrants
were determined to be equity classified and were recorded at fair value in additional paid-in capital on the balance sheet for the period.
Their fair value was based on the price the third-party investors paid for the original subscription agreements described above.
The
Company also issued warrants to purchase 100,000 shares of common stock to the underwriters at an exercise price of $3.30 per share (110%
of public offering price).
A
summary of the warrant activity during the three and nine months ended July 31, 2023 is presented below:
SCHEDULE OF WARRANT ACTIVITY
| | |
Number of Warrants | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Life in Years | | |
Intrinsic Value | |
| | |
| | |
| | |
| | |
| |
| Outstanding, May 1, 2023 | |
| 3,419,451 | | |
$ | 1.00 | | |
| 2.8 | | |
$ | - | |
| Issued | |
| 489,893 | | |
| 0.80 | | |
| 2.7 | | |
| - | |
| Exercised | |
| (2,449,466 | ) | |
| 0.98 | | |
| - | | |
| - | |
| Cancelled | |
| - | | |
| - | | |
| - | | |
| - | |
| Expired | |
| - | | |
| - | | |
| - | | |
| - | |
| Outstanding, July 31, 2023 | |
| 1,459,878 | | |
$ | 1.03 | | |
| 3.0 | | |
$ | 318,000 | |
| | |
| | | |
| | | |
| | | |
| | |
| Exercisable, July 31, 2023 | |
| 1,459,878 | | |
$ | 1.03 | | |
| 3.0 | | |
$ | 318,000 | |
| | |
Number of Warrants | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Life in Years | | |
Intrinsic Value | |
| | |
| | |
| | |
| | |
| |
| Outstanding, November 1, 2022 | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
| Issued | |
| 3,909,344 | | |
| 1.00 | | |
| 3.1 | | |
| - | |
| Exercised | |
| (2,449,466 | ) | |
| 0.98 | | |
| - | | |
| - | |
| Cancelled | |
| - | | |
| - | | |
| - | | |
| - | |
| Expired | |
| - | | |
| - | | |
| - | | |
| - | |
| Outstanding, July 31, 2023 | |
| 1,459,878 | | |
$ | 1.03 | | |
| 3.0 | | |
$ | 318,000 | |
| | |
| | | |
| | | |
| | | |
| | |
| Exercisable, July 31, 2023 | |
| 1,459,878 | | |
$ | 1.03 | | |
| 3.0 | | |
$ | 318,000 | |
A
summary of outstanding and exercisable warrants as of July 31, 2023 is presented below:
SCHEDULE OF OUTSTANDING AND EXERCISABLE WARRANTS
| Warrants Outstanding | | |
Warrants Exercisable | |
| | | |
| | |
Weighted | | |
| |
| | | |
| | |
Average | | |
| |
| Exercise | | |
Number of | | |
Remaining | | |
Number of | |
| Price | | |
Shares | | |
Life in Years | | |
Shares | |
| $ | 0.01 | | |
| 400,000 | | |
| 4.7 | | |
| 400,000 | |
| $ | 1.50 | | |
| 400,000 | | |
| 1.4 | | |
| 400,000 | |
| $ | 3.30 | | |
| 100,000 | | |
| 4.7 | | |
| 100,000 | |
| $ | 1.03 | | |
| 559,878 | | |
| 2.7 | | |
| 559,878 | |
| | | | |
| 1,459,878 | | |
| 3.0 | | |
| 1,459,878 | |
NOTE
10 – SUBSEQUENT EVENTS
In
accordance with ASC 855 – Subsequent Events, which establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before condensed financial statements are issued, the Company has evaluated all events and transactions
that occurred after July 31, 2023, through the date the condensed financial statements are available for filing.
On
September 2, 2023, the Company granted a total of 425,000
shares of restricted common stock to four non-employee
independent directors as consideration for their continued service pursuant to the Plan at a price of $0.64
per share; one hundred percent of the shares
vest on the six-month anniversary of the vesting commencement date, which is August 28, 2023.
Up
to 11,428,572 shares of Common Stock
Issuable
upon Conversion of a Senior Secured Convertible Promissory Note
Up
to 1,733,404 shares of Common Stock
Issuable
upon Exercise of a Common Warrant
Up
to 83,333 shares of Common Stock
Issuable
upon Exercise of a Placement Agent Warrant
PROSPECTUS
December
15, 2023
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