Notes
to Financial Statements
December
31, 2021
Note
1 – Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies
Name
change
At
the Annual Meeting of Stockholders held on October 13, 2021 the stockholders approved an amendment
to the Company’s Certificate of Incorporation, as amended, changing the Company’s name from Infinity Energy Resources, Inc.
to American Noble Gas Inc “AMGAS,” the “Company,” “we,” “us” and “our”
refers collectively to American Noble Gas Inc, (formerly Infinity Energy Resources, Inc.), its predecessors and subsidiaries or one
or more of them as the context may require.
Reincorporation
in Nevada
On
December 7, 2021, pursuant to an Agreement and Plan of Merger, American Noble Gas, Inc., a Delaware corporation, merged with and into
its wholly owned subsidiary, American Noble Gas Inc, a Nevada corporation (“AMGAS-Nevada” and/or the “Company”)
with AMGAS-Nevada continuing as the surviving corporation. In conjunction with the merger, AMGAS-Nevada succeeded to the assets, continued
the business and assumed the rights and obligations of the predecessor Delaware corporation existing immediately prior to the merger.
The merger was consummated by the filing of a certificate of merger on December 7, 2021 with the Secretary of State of the State of Delaware
and articles of merger with the Secretary of State of the State of Nevada. The Agreement and Plan of Merger and transactions contemplated
thereby were adopted by the holders of a majority of the outstanding shares of the predecessor company’s common stock, par value,
$0.0001 per share and/or Series A Convertible Preferred Stock, par value $0.0001 per share, on an as-converted common stock basis, by
written consent in lieu of a special meeting of stockholders, in accordance with the Delaware General Corporation Law.
Pursuant
to the Agreement and Plan of Merger, (i) each outstanding share of predecessor’s common stock automatically converted into one
share of common stock, par value $0.0001 per share, of AMGAS-Nevada, (ii) each outstanding share of the predecessor’s series A
convertible preferred stock automatically converted into one share of series A convertible preferred stock, par value $0.0001 per share
of AMGAS-Nevada, and (iii) each outstanding option, right or warrant to acquire shares of predecessor common stock converted into an
option, right or warrant to acquire an equal number of shares of AMGAS-Nevada common stock under the same terms and conditions as the
original options, rights or warrants.
Similar
to the shares of predecessor common stock prior to the merger, the shares of AMGAS-Nevada common stock are quoted on the OTCQB tier operated
by the OTC Markets Group Inc. under the symbol “IFNY”. In accordance with the Agreement and Plan of Merger, each outstanding
certificate previously representing shares of the predecessor’s common stock or series A preferred stock automatically represents,
without any action of the predecessor’s stockholders, the same number of shares of AMGAS-Nevada common stock or series A preferred
stock, as applicable.
Pursuant
to the Agreement and Plan of Merger, the directors and officers of the predecessor company immediately prior to the merger became the
directors and officers of AMGAS-Nevada and continued their respective directorship or services with the Company on the same terms as
their respective directorship or service with the predecessor registrant immediately prior to the merger.
As
a result of the merger, the internal affairs of the Company ceased to be subject to the Delaware General Corporation Law or governed
by the predecessor’s Delaware Certificate of Incorporation, as amended and its bylaws. As of the December 7, 2021 merger date,
the Company is now subject to the Nevada Revised Statutes and is governed by the Company’s Articles of Incorporation and Bylaws
as filed in the State of Nevada.
Quotation
of Common Stock on OTCQB
Effective,
July 13, 2021, the Company’s Common Stock was approved for quotation on the OTCQB® Venture Market under the symbol
“IFNY.”
Nature
of Operations
Since
2009, we had planned to pursue the exploration of potential oil and gas resources in the United States and in the Perlas and Tyra concession
blocks offshore Nicaragua in the Caribbean Sea (the “Nicaraguan Concessions” or “Concessions”), which contain
a total of approximately 1.4 million acres. Civil unrest within Nicaragua and difficulties encountered with negotiations on extensions
and the issuance of permits to drill with the Nicaraguan government made the exploration and development of the underlying concessions
problematic. In addition, the Company was in technical default of the certain terms of the Nicaraguan Concession and the Nicaraguan government
terminated both of the underlying Concessions. As a result, the Company abandoned all of its efforts to explore and develop the Nicaraguan
Concessions effective January 1, 2020.
We
sold our wholly-owned subsidiary, Infinity Oil and Gas of Texas, Inc. (“Infinity Texas”) in 2012 and its wholly-owned subsidiary,
Infinity Oil and Gas of Wyoming, Inc. (“Infinity Wyoming”), was administratively dissolved in 2009.
Subsequent
to the termination of the Nicaraguan Concessions, we began assessing various opportunities and strategic alternatives involving the acquisition,
exploration and development of gas and oil properties in the United States, including the possibility of acquiring businesses or assets
that provide support services for the production of oil and gas in the United States. As a result, on July 31, 2019, we acquired an option
(the “Option”) from Core Energy, LLC, a closely held company (“Core”), to purchase the production and mineral
rights/leasehold for oil & gas properties, subject to overriding royalties to third parties, in the Central Kansas Uplift geological
formation covering over 11,000 contiguous acres (the “Properties”). We paid a non-refundable deposit of $50,000 to bind the
Option, which provided us the right to acquire the Properties for $2.5 million prior to December 31, 2019. The Company was not able to
exercise the Option prior to December 31, 2019. On September 2, 2020, the Company acquired a new Option from Core under similar terms
as the previous Option, however the newly acquired Option permitted the Company to purchase the Properties at a reduced price of $900,000
at any time prior to November 1, 2020 and the Company agreed to immediately conduct a capital raise of between approximately $2-10 million
to fund its acquisition and development of the Properties. On December 14, 2020 the parties executed an Asset Purchase and Sale Agreement
which extended the new Option to January 11, 2021, which expired.
We,
Core, and Seller entered into the Side Letters on September 2, 2020 and March 31, 2021, pursuant to which we and Core agreed to set the
closing date of the acquisition of the Properties under the Asset Purchase Agreement to April 1, 2021. Pursuant to the Side Letters,
the Company is responsible for reimbursing Core for certain prorated revenues and expenses from January 1, 2021 through April 1, 2021.
On
April 1, 2021 we completed the acquisition of the Properties, under the same terms of the Asset Purchase Agreement which provided a purchase
price of $900,000. The Company raised approximately $2.05 million on March 26, 2021 through the issuance of Convertible Preferred Stock
with detachable common stock purchase warrants. The funds raised pursuant to the Convertible Preferred Stock issuance were used to complete
the acquisition of the Properties on April 1, 2021 and to retire all outstanding Convertible Notes Payable.
The
purchase of the Properties included the existing production equipment, infrastructure and ownership of 11 square miles of existing 3-D
seismic data on the acreage. The Properties include a horizontal producing well, horizontal saltwater injection well, conventional saltwater
disposal well and two conventional vertical producing wells, which currently produce from the Reagan Sand Zone with an approximate depth
of 3,600 feet.
We
commenced rework of the existing production wells after completion of the acquisition of the Properties and have performed testing and
evaluation of the existence of noble gas reserves on the Properties including helium, argon and other rare earth minerals/gases. Testing
of the Properties for noble gas reserves has provided encouraging but not conclusive results and the Company has yet to determine the
possibility of commercializing the noble gas reserves on the Properties. The Company plans to assess the Properties existing oil and
gas reserves while continuing the evaluation of the existence of new oil and gas zones and other mineral reserves and specifically the
noble gas reserves that the Properties may hold.
We
may find it necessary to obtain new sources of debt and/or equity capital to fund the exploration and development of the Properties enumerated
above, as well as satisfying our existing debt obligations. We can provide no assurance that we will be able to obtain sufficient new
debt/equity capital to fund our planned development of the Properties.
COVID–19
Pandemic
The
financial statements contained in this Annual Report on Form 10-K as well as the description of our business contained herein, unless
otherwise indicated, principally reflect the status of our business and the results of our operations as of December 31, 2021. Economies
throughout the world continue to suffer disruptions by the effects of the quarantines, business closures and the reluctance of individuals
to leave their homes as a result of the outbreak of the coronavirus (COVID-19) including the recent rise of the new Omicron variant.
In particular, the oil and gas market has been severely impacted by the negative effects of the coronavirus because of the substantial
and abrupt decrease in the demand for oil and gas globally followed by the recent resurgence in oil and natural gas prices. In addition,
the capital markets have experienced periods of disruption and our efforts to raise necessary capital in the future may be adversely
impacted by the pandemic and investor sentiment and we cannot forecast with any certainty when the lingering uncertainty caused by the
COVID-19 pandemic will cease to impact our business and the results of our operations. In reading this Annual Report on Form 10-K, including
our discussion of our ability to continue as a going concern set forth herein, in each case, consider the additional uncertainties caused
by the outbreak of COVID-19.
Going
Concern
The
Company has incurred net losses from operations, has a net stockholders’ deficit, incurred net cash used in operating activities
and has a significant working capital deficit as of and for the year ended December 31, 2021. The Company must raise substantial amounts
of debt and equity capital from other sources in the future in order to fund the (i) development of the Properties acquired on April
1, 2021; (ii) funding our obligations for exploration and development under the Farmout Agreement; (iii) normal day-to-day operations
and corporate overhead; and (iv) outstanding debt and other financial obligations as they become due, as described below. These are substantial
operational and financial issues that must be successfully addressed during 2022 and beyond.
The
Company has made substantial progress in resolving many of its existing financial obligations during the year ended December 31, 2021.
In that regard, on March 31, 2021, the Company and six creditors entered into Debt Settlement Agreements which extinguished accounts
payable and accrued liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of 3% Notes with detachable
warrants to purchase 5,732,994 shares of Common Stock for $0.50 per share. On April 1, 2021, the Company and the holders of two notes
payable that were in default reached a settlement whereby the Company issued a total of 245,000 shares of Common Stock in exchange for
the extinguishment of the outstanding principal, accrued interest and associated common stock purchase warrants which totaled $123,830
as of April 1, 2021. The Company has made substantial progress in resolving its financial obligations: however, there is in excess of
$1.9 million of old unpaid accounts payable and accrued liabilities that the Company believes that it may not have to pay based on the
relevant Statute of Limitations on repayment.
The
Company will have significant financial commitments to execute its planned exploration and development of the Properties and the Hugoton
Gas Field. The Company may find it necessary to raise substantial amounts of debt or equity capital to fund such exploration and development
activities and may seek offers from industry operators and other third parties for interests in the Properties in exchange for cash and
a carried interest in exploration and development operations or other joint venture arrangement. There can be no assurance that it will
be able to obtain such new funding or be able to reach agreements with industry operators and other third parties or on what terms.
Due
to the uncertainties related to the foregoing matters, there exists substantial doubt about the Company’s ability to continue as
a going concern within one year after the date the financials are issued. The financial statements do not include any adjustments relating
to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result
should the Company be unable to continue as a going concern.
Revenue
Recognition
On
January 1, 2018, the Company adopted ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” and the
series of related accounting standard updates that followed, using the modified retrospective method of adoption. Adoption of the ASU
did not require an adjustment to the opening balance of equity and did not change the Company’s amount and timing of revenues.
The
Company’s revenues are primarily derived from its interests in the sale of oil and natural gas production. To date, such revenues
have only included the sale of oil however the Company expects to begin generating revenues from the sale of natural gas and noble gases
in the future. The Company recognizes revenue from its interests in the sales of oil and gas in the period that its performance obligations
are satisfied. Performance obligations are satisfied when the customer obtains control of product, when the Company has no further obligations
to perform related to the sale, when the transaction price has been determined and when collectability is probable. The sales of oil
and gas are made under contracts which the third-party operators of the wells have negotiated with customers, which typically include
variable consideration that is based on pricing tied to local indices and volumes delivered in the current month. The Company receives
payment from the sale of oil and gas production from one to three months after delivery. At the end of each month when the performance
obligation is satisfied, the variable consideration can be reasonably estimated and amounts due from customers are accrued in trade receivables,
net in the balance sheets. Variances between the Company’s estimated revenue and actual payments are recorded in the month the
payment is received, however, differences have been and are insignificant. The Company’s oil is typically sold at delivery points
under contracts terms that are common in our industry.
Management
Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Significant
estimates include, but are not limited to, oil and gas reserves; depreciation, depletion and amortization of proved oil and gas properties;
future cash flows from oil and gas properties; impairment of long-lived assets; fair value of derivatives; fair value of equity compensation;
the realization of deferred tax assets; fair values of assets acquired and liabilities assumed in business combinations.
Cash
and Cash Equivalents
For
purposes of reporting cash flows, cash consists of cash on hand and demand deposits with financial institutions. The Company’s
policy is that all highly liquid investments with an original maturity of three months or less when purchased would be cash
equivalents and would be included along with cash as cash and equivalents.
The
Company maintains its cash and cash equivalents in banks insured by the Federal Deposit Insurance Corporation (FDIC) in accounts that
at times may be in excess of the federally insured limit of $250,000 per bank. The Company minimizes this risk by placing its cash deposits
with several financial institutions. At December 31, 2021 and December 31, 2020, the uninsured balance amounted to $10,504 and $-0-,
respectively.
Oil
and gas properties
On
April 1, 2021 we completed the acquisition of the Properties, under the terms of the Asset Purchase Agreement which provided a purchase
price of $900,000. The purchase of the Properties included the existing production equipment, infrastructure and ownership of 11 square
miles of existing 3-D seismic data on the acreage. The Properties include a horizontal producing well, horizontal saltwater injection
well, conventional saltwater disposal well and two conventional vertical producing wells, which currently produce from the Reagan Sand
Zone with an approximate depth of 3,600 feet.
The
Company has performed workovers of the wells subsequent to the Properties purchase which was necessary to put the lease back into production
status. Therefore, these tangible and intangible workover costs were expensed as lease operating expenses rather than capitalized in
the full cost pool in the years ended December 31, 2021. In addition, the Company is currently evaluating the Properties for oil and
gas reserves and specifically the potential for noble gas reserves such as helium, argon and krypton. Based on these evaluations, the
Company may redirect its efforts to the production of noble gases rather than crude oil on the Properties. These noble gas evaluation
costs have also been expensed as lease operating costs during the year ended December 31, 2021.
The
accounting for, and disclosure of, oil and gas producing activities require that we choose between two GAAP alternatives: the full cost
method or the successful efforts method. We adopted and use the full cost method of accounting, which involves capitalizing all exploration,
exploitation, development and acquisition costs. Once we incur costs, they are recorded in the depletable pool of proved properties or
in unproved properties, collectively, the full cost pool. Our unproved property costs, which include unproved oil and gas properties,
properties under development, and major development projects, which were zero at December 31, 2021 and 2020, and are not subject to depletion.
We review our unproved oil and gas property costs on a quarterly basis to assess for impairment and transfer unproved costs to proved
properties as a result of extensions or discoveries from drilling operations or determination that no proved reserves are attributable
to such costs. We expect these costs to be evaluated in one to seven years and transferred to the depletable portion of the full cost
pool during that time. The full cost pool is comprised of intangible drilling costs, lease and well equipment and exploration and development
costs incurred plus acquired proved and unproved leaseholds.
When
we acquire significant amounts of undeveloped acreage, we capitalize interest on the acquisition costs in accordance with FASB ASC Subtopic
835-20 for Capitalization of Interest. We capitalize interest upon identification and development of shale resource opportunities in
the Haynesville and Marcellus areas. When the unproved property costs are moved to proved developed and undeveloped oil and gas properties,
or the properties are sold, we cease capitalizing interest.
Capitalized
costs to acquire oil and natural gas properties are depreciated and depleted on a units-of-production basis based on estimated proved
reserves. Capitalized costs of exploratory wells and development costs are depreciated and depleted on a units-of-production basis based
on estimated proved developed reserves. Under this method, the sum of the full cost pool, excluding the book value of unproved properties,
and all estimated future development costs are divided by the total estimated quantities of proved reserves. This rate is applied to
our total production for the quarter, and the appropriate expense is recorded. Support equipment and other property, plant and equipment
related to oil and gas producing activities, as well as property, plant and equipment unrelated to oil and gas producing activities,
are recorded at cost and depreciated on a straight-line basis over the estimated useful lives of the assets.
Sales,
dispositions and other oil and gas property retirements are accounted for as adjustments to the full cost pool, with no recognition of
gain or loss, unless the disposition would significantly alter the amortization rate and/or the relationship between capitalized costs
and Proved Reserves.
Pursuant
to Rule 4-10(c)(4) of Regulation S-X, at the end of each quarterly period, companies that use the full cost method of accounting for
their oil and gas properties must compute a limitation on capitalized costs, or ceiling test. The ceiling test involves comparing the
net book value of the full cost pool, after taxes, to the full cost ceiling limitation defined below. In the event the full cost ceiling
is less than the full cost pool, we must record a ceiling test write-down of our oil and gas properties to the value of the full cost
ceiling. The full cost ceiling limitation is computed as the sum of the present value of estimated future net revenues from our proved
reserves by applying average prices as prescribed by the SEC Release No. 33-8995, less estimated future expenditures (based on current
costs) to develop and produce the proved reserves, discounted at 10%, plus the cost of properties not being amortized and the lower of
cost or estimated fair value of unproved properties included in the costs being amortized, net of income tax effects.
The
ceiling test is computed using the simple average spot price for the trailing twelve-month period using the first day of each month.
For the period ended December 31, 2021, the trailing twelve-month reference price was $67.99 per barrel for the West Texas Intermediate
oil at Cushing, Oklahoma. This reference price for oil is further adjusted for quality factors and regional differentials to derive estimated
future net revenues. Under full cost accounting rules, any ceiling test write-downs of oil and gas properties may not be reversed in
subsequent periods. There were no ceiling test write-downs for the year ended December 31, 2021.
The
ceiling test calculation is based upon estimates of proved reserves. There are numerous uncertainties inherent in estimating quantities
of proved reserves, in projecting the future rates of production and in the timing of development activities. The accuracy of any reserve
estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling,
testing and production subsequent to the date of the estimate may justify revision of such estimate. Accordingly, reserve estimates are
often different from the quantities of oil and gas that are ultimately recovered.
Convertible
Instruments
In
August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives
and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)” which is intended to reduce complexity in applying
GAAP to certain financial instruments with characteristics of liabilities and equity. The guidance in ASU 2020-06 simplifies the accounting
for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion
and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately
from the host convertible debt or preferred stock. The guidance in ASC 470-20 applies to convertible instruments for which the embedded
conversion features are not required to be bifurcated from the host contract and accounted for as derivatives. In addition, the amendments
revise the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that
are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required
for equity classification. These amendments are expected to result in more freestanding financial instruments qualifying for equity classification
(and, therefore, not accounted for as derivatives), as well as fewer embedded features requiring separate accounting from the host contract.
The amendments in ASU 2020-06 further revise the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings
per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for
purposes of calculating diluted EPS when an instrument may be settled in cash or shares.
The
amendments in ASU 2020-06 are effective for public entities that meet the definition of an SEC filer, excluding smaller reporting companies
as defined by the SEC, for fiscal years beginning after December 15, 2021. For all other entities, the amendments are effective for fiscal
years beginning after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020.
The
Company early adopted ASU 2020-06 effective January 1, 2021 and has applied its effects to the 3% Convertible Promissory Notes issued
on March 31, 2021 and the 8% Convertible Promissory Note issued on August 30, 2021(See Note 3). The Company elected to adopt ASU 2020-06
using the modified retrospective method which enables entities to apply the transition requirements in this ASU at the effective date
of ASU 2020-06 (rather than as of the earliest comparative period presented) with the effect of initially adopting ASU 2020-06 recognized
as a cumulative-effect adjustment to retained earnings (accumulated deficit) on the first day of the period adopted. Therefore, this
transition method applies the amendments in ASU 2020-06 to outstanding financial instruments as of the beginning of the fiscal year of
adoption (January 1, 2021), with the cumulative effect of the change recognized as an adjustment to the opening balance of retained earnings
(accumulated deficit) as of the date of adoption. In accordance with the modified retrospective method, no adjustment was made to the
comparative-period information including earnings (loss) per share.
The
Company applied ASU-2020-06 to all outstanding financial instruments as of January 1, 2021, (the date of adoption of ASU 2020-06). The
convertible notes payable issued on August 19, 2020 was the only outstanding financial instrument effected by this new accounting standard
as of January 1, 2021. Therefore the application of ASU-2020-06 to this convertible note payable was used to determine the cumulative
effect of the adoption of the new accounting standard. The cumulative effect of the adoption of the new accounting standard was determined
and recognized as an adjustment to the opening balance of retained earnings (accumulated deficit) which resulted in an increase to the
carrying value of convertible notes payable as of January 1, 2021 by $160,900, a decrease to additional paid in capital of $252,961 and
a decrease to accumulated deficit of $92,061. See Note 3.
Prior
to the adoption of ASU 2020-06, the Company applied the existing accounting standards for derivatives and hedging and for distinguishing
liabilities from equity when accounting for hybrid contracts that feature conversion options. The accounting standards require companies
to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according
to certain criteria. The criteria includes circumstances in which (i) the economic characteristics and risks of the embedded derivative
instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (ii) the hybrid instrument
that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable
generally accepted accounting principles with changes in fair value reported in earnings as they occur and (iii) a separate instrument
with the same terms as the embedded derivative instrument would be considered a derivative instrument. The derivative is subsequently
marked to market at each reporting date based on current fair value, with the changes in fair value reported in results of operations.
Conversion
options that contain variable settlement features such as provisions to adjust the conversion price upon subsequent issuances of equity
or equity linked securities at exercise prices more favorable than that featured in the hybrid contract generally result in their bifurcation
from the host instrument.
Issuance
of Debt Instruments With Detachable Stock Purchase Warrants
Proceeds
from the issuance of a debt instrument with stock purchase warrants (detachable call options) are allocated to the two elements based
on the relative fair values of the debt instrument without the warrants and of the
warrants themselves at time of issuance. The portion of the proceeds so allocated to the warrants are recorded as additional paid-in
capital. The remainder of the proceeds are allocated to the debt instrument portion of the transaction. Such issuances generally result
in a discount (or, occasionally, a reduced premium) relative to the debt instrument, which is amortized to interest expense using the
effective interest rate method.
The
Company records estimated future asset retirement obligations pursuant to the provisions of ASC 410. ASC 410 requires entities to record
the fair value of a liability for an asset retirement obligation in the period in which it is incurred with a corresponding increase
in the carrying amount of the related long-lived asset. Subsequent to initial measurement, the asset retirement liability is required
to be accreted each period. The Company’s asset retirement obligations consist of costs related to the plugging of wells, the removal
of facilities and equipment, and site restoration on oil and gas properties.
During
the year ended 2021, the Company acquired the Kansas Properties and assumed the related asset retirement obligation existing at the date
of acquisition. The asset retirement obligation assumed for the Kansas Properties relates to the plug and abandonment costs when the
wells acquired are no longer useful. The Company determined the value of the liability by obtaining quotes for this service and estimated
the increased costs that the Company will face in the future. We then discounted the future value based on an intrinsic interest rate
that is appropriate for us. If costs rise more than what we have expected there could be additional charges in the future, however, we
monitor the costs of the abandoned wells and we will adjust this liability if necessary.
As
of December 31, 2020, the Company had divested all of its domestic oil properties that contain operating and abandoned wells
in Texas, Colorado and Wyoming. The Company may have obligations related to the divestiture of certain abandoned non-producing domestic
leasehold properties should the new owner not perform its obligations to reclaim abandoned wells in a timely manner. Management believes
the Company has been relieved from asset retirement obligation related to Infinity-Texas because of the sale of its Texas oil and gas
properties in 2011 and its sale of 100% of the stock in Infinity-Texas in 2012. The Company has recognized an additional liability of
$734,897 related to its former Texas oil and gas producing properties (included in asset retirement obligations) to recognize the potential
personal liability of the Company and its officers for the Infinity-Texas oil and gas properties should the new owner not perform its
obligations to reclaim abandoned wells in a timely manner. In addition, management believes the Company has been relieved from asset
retirement obligations related to Infinity-Wyoming because of the sale of its Wyoming and Colorado oil and gas properties in 2008; however,
the Company has recognized since 2012 an additional liability of $981,106 related to its former Wyoming and Colorado oil and gas producing
properties (included in asset retirement obligations) to recognize the potential liability of the Company and its officers should the
new owner not perform its obligations to reclaim abandoned wells in a timely manner.
Derivative
Instruments
The
Company accounts for derivative instruments or hedging activities under the provisions of ASC 815 Derivatives and Hedging. ASC
815 requires the Company to record derivative instruments at their fair value. If the derivative is designated as a fair value hedge,
the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If
the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded
in other comprehensive earnings (loss) and are recognized in the statement of earnings when the hedged item affects earnings. Ineffective
portions of changes in the fair value of cash flow hedges, if any, are recognized in earnings. Changes in the fair value of derivatives
that do not qualify for hedge treatment are recognized in earnings.
The
purpose of hedging is to provide a measure of stability to the Company’s cash flows in an environment of volatile oil and gas prices
and to manage the exposure to commodity price risk. As of December 31, 2021 and 2020 and during the years then ended, the Company had
no oil and natural gas derivative arrangements outstanding.
As
a result of certain terms, conditions and features included in certain common stock purchase warrants issued by the Company (Note 3),
those warrants were required to be accounted for as derivatives at estimated fair value, with changes in fair value recognized in operations.
Fair
Value of Financial Instruments
The
carrying values of the Company’s accounts payable, accrued liabilities and short-term notes represent the estimated fair value
due to the short-term nature of the accounts.
In
accordance with ASC Topic 820 — Fair Value Measurements and Disclosures (“ASC 820”), the Company utilizes the
market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information
generated by market transactions involving identical or comparable assets, liabilities or a group of assets or liabilities, such as a
business.
ASC
820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.
The following is a brief description of those three levels:
|
● |
Level
1 — |
Quoted
prices in active markets for identical assets and liabilities. |
|
|
|
|
|
● |
Level
2 — |
Other
significant observable inputs (including quoted prices in active markets for similar assets or liabilities). |
|
|
|
|
|
● |
Level
3 — |
Significant
unobservable inputs (including the Company’s own assumptions in determining the fair value. |
The
estimated fair value of various derivative liabilities, which are related to detachable warrants issued in connection with various notes
payable, were estimated using a closed-ended option pricing model utilizing assumptions related to the contractual term of the instruments,
estimated volatility of the price of the Company’s common stock, and current interest rates. The fair values for the warrant derivatives
as of December 31, 2021 and 2020 were classified under the fair value hierarchy as Level 3.
The
following table represents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring
basis as of December 31, 2021 and 2020:
Schedule of Assets and Liabilities Measured at Fair Value on Recurring Basis
December 31, 2021 | |
| Level 1 | | |
| Level 2 | | |
| Level 3 | | |
| Total | |
Liabilities: | |
| | | |
| | | |
| | | |
| | |
Derivative liabilities | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
| |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
December 31, 2020 | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Liabilities: | |
| | |
| | |
| | |
| |
Derivative liabilities | |
$ | — | | |
$ | — | | |
$ | 321 | | |
$ | 321 | |
| |
$ | — | | |
$ | — | | |
$ | 321 | | |
$ | 321 | |
There
were no changes in valuation techniques or reclassifications of fair value measurements between Levels 1, 2 or 3 during the years ended
December 31, 2021 and 2020.
Income
Taxes
The
Company uses the asset and liability method of accounting for income taxes. This method requires the recognition of deferred tax liabilities
and assets for the expected future tax consequences of temporary differences between financial accounting bases and tax bases of assets
and liabilities. The tax benefits of tax loss carryforwards and other deferred taxes are recorded as an asset to the extent that management
assesses the utilization of such assets to be more likely than not. Management routinely assesses the realizability of the Company’s
deferred income tax assets, and a valuation allowance is recognized if it is determined that deferred income tax assets may not be fully
utilized in future periods. Management considers future taxable earnings in making such assessments. Numerous judgments and assumptions
are inherent in the determination of future taxable earnings, including such factors as future operating conditions. When the future
utilization of some portion of the deferred tax asset is determined not to be more likely than not, a valuation allowance is provided
to reduce the recorded deferred tax asset. When the Company can project that a portion of the deferred tax asset can be realized through
application of a portion of tax loss carryforward, the Company will record that utilization as a deferred tax benefit and recognize a
deferred tax asset in the same amount. There can be no assurance that facts and circumstances will not materially change and require
the Company to adjust its deferred income tax asset valuation allowance in a future period. The Company recognized a deferred tax asset,
net of valuation allowance, of $-0- at December 31, 2021 and 2020.
The
Company is potentially subject to taxation in many jurisdictions, and the calculation of income tax liabilities (if any) involves dealing
with uncertainties in the application of complex income tax laws and regulations in various taxing jurisdictions. It recognizes certain
income tax positions that meet a more-likely-than not recognition threshold. If the Company ultimately determines that the payment of
these liabilities will be unnecessary, it will reverse the liability and recognize an income tax benefit. No liability for unrecognized
tax benefit was recorded as of December 31, 2021 and 2020.
Stock-based
compensation
The
Company applies ASC 718, Stock Compensation, which requires companies to recognize compensation expense for share-based payments
based on the estimated fair value of the awards. ASC 718 also requires tax benefits relating to the deductibility of increases in the
value of equity instruments issued under share-based compensation arrangements to be presented as financing cash inflows in the statement
of cash flows. Compensation cost is recognized based on the grant-date fair value for all share-based payments granted and is estimated
in accordance with the provisions of ASC 718.
Basic
and Diluted Income (Loss) Per Share
Net
income (loss) per share is calculated in accordance with FASB ASC 260, Earnings Per Share, for the periods presented. Basic net loss
per share is based upon the weighted average number of shares of Common Stock outstanding. Diluted net earnings (loss) per share is based
on the assumption that all dilutive convertible shares, warrants and stock options were converted or exercised or excluded from the calculations
if their inclusion would be antidilutive. Dilution is computed by applying the if-converted/treasury stock method. Under this method,
options and warrants are assumed exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase shares of Common Stock at the average market price during the period. The Company has outstanding convertible
promissory notes payable and Convertible Preferred Stock both of which is potentially dilutive. Such potential dilutive effect is included
in diluted earnings (loss) per share at the beginning of the period (or at the time of issuance, if later) if they have a dilutive effect
or such potentially dilutive securities are excluded from the calculations if their inclusion would be antidilutive.
The
Company has outstanding convertible promissory notes payable and convertible preferred stock both of which is potentially dilutive. The
adoption of ASU 2020-06 requires the Company to assume share settlement when an instrument can be settled in cash or shares at the entity’s
option. This applies both to convertible instruments and freestanding arrangements that could result in cash or share settlement. ASU
2020-06 also stipulates that an average market price for the period should be used in the computation of the diluted earnings (loss)
per share denominator in cases when the exercise price of an instrument may change based on an entity’s share price or changes
in the entity’s share price may affect the number of shares that would be used to settle a financial instrument. Lastly, an entity
should use the weighted-average share count from each quarter when calculating the year-to-date weighted average share count for all
potentially dilutive securities.
During
the year ended December 31, 2021, the Company had outstanding the following securities that were potentially dilutive; 1) Series A Convertible
Preferred Stock, 2) Convertible Note Payable through its retirement on March 26, 2021, 3) 3% Convertible Promissory Notes issued on March
31, 2021, 4) 8% Convertible Promissory Note issued on August 30, 2021, 5) 8% Convertible Promissory Notes issued on October 29, 2021,
6) Common Stock purchase warrants and 7) stock purchase options. The inclusion of all potentially dilutive securities in diluted income
(loss) for the year ended December 31, 2021 were excluded because of their anti-dilutive effect because of the net loss reported for
the year ended December 31, 2021.
During
the year ended December 31, 2020, the shares of Common Stock issuable upon conversion of the August Note were considered Common Stock
equivalents and therefore the dilutive effect of such issuance was included in the computation of diluted income (loss) per share. All
shares of Common Stock issuable upon conversion of convertible debt (other than the August Note) and the exercise of outstanding stock
options and warrants were antidilutive, and, therefore, not included in the computation of diluted income (loss) per share for the year
ended December 31, 2020.
Gain
on Extinguishment of Liabilities / Troubled Debt Restructuring:
In
accordance with ASC 470, the Company assesses restructuring of debt as troubled debt restructuring if the creditor for economic or legal
reasons related to the debtor’s financial difficulties grant a concession to the debtor that it would not otherwise consider. The
Company records a gain on restructuring of payables when it transfers its assets to a creditor to fully settle a payable. The gain is
measured by the excess of the carrying amount of the payable over the fair value of the assets transferred or fair value of equity interest
granted.
Gain
on Extinguishment of Payables:
In
accordance with ASC 405, a debtor shall derecognize a liability if and only if it has been extinguished. A liability has been extinguished
if either of the following conditions is met:
a.
The debtor pays the creditor and is relieved of its obligation for the liability. Paying the creditor includes the following:
|
1. |
Delivery
of cash |
|
|
|
|
2. |
Delivery
of other financial assets |
|
|
|
|
3. |
Delivery
of goods or services |
|
|
|
|
4. |
Reacquisition
by the debtor of its outstanding debt securities whether the securities are cancelled or held as so-called treasury bonds. |
b.
The debtor is legally released from being the primary obligor under the liability, either judicially or by the creditor. For purposes
of applying this Subtopic, a sale and related assumption effectively accomplish a legal release if nonrecourse debt (such as certain
mortgage loans) is assumed by a third party in conjunction with the sale of an asset that serves as sole collateral for that debt.”
Related
Parties:
We
follow ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions.
Recent
Accounting Pronouncements
Reference
Rate Reform. - In March 2020, the Financial Accounting Standards Board (the “FASB”) issued an accounting standard
update which provides optional expedients and expectations for applying GAAP to contracts, hedging relationships and other transactions
to ease financial reporting burdens to the expected market transition from the London Interbank Offered Rate (“LIBOR”) or
another reference rate to alternative reference rates. The amendments in this accounting standards update became effective March 12,
2020, and an entity may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the
impact this guidance may have on the Company’s financial statements.
Income
Taxes – Simplifying the Accounting for Income Taxes. In December 2019, the FASB issued an accounting standard update which
simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. This accounting standards
update removes the following exceptions: (i) exception to the incremental approach for intraperiod tax allocation when there is a loss
from continuing operations and income or a gain from other items; (ii) exception to the requirements to recognize a deferred tax liability
for equity method investments when a foreign subsidiary becomes an equity method investment; (iii) exception to the ability not to recognize
a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and (iv) exception to
the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the
year. The amendments in the accounting standards update also improve consistency and simplify other areas of Topic 740 by clarifying
and amending existing guidance. The guidance became effective for interim and annual periods beginning after December 15, 2020, with
early adoption permitted. The Company adopted the guidance effective January 1, 2021, with all of the anticipated and applicable effects
to be required on a prospective basis. The adoption of this guidance did not have a material impact on our consolidated financial statements.
Other
accounting standards that have been issued by the FASB or other standards-setting bodies are not expected to have a material impact on
the Company’s financial position, results of operations and cash flows.
Note
2 – Oil and Gas Properties and Equipment
Oil and gas properties and equipment is comprised
of the following at December 31, 2021 and 2020:
Schedule of Oil and Gas Properties and Equipment
| |
December 31,
2021 | | |
December 31,
2020 | |
Oil and gas production equipment | |
$ | 913,425 | | |
$ | — | |
Less: Accumulated depreciation, depletion
and amortization | |
| (92,502 | ) | |
| — | |
Oil and gas properties and equipment, net | |
$ | 820,923 | | |
$ | — | |
On
April 1, 2021, the Company completed the previously announced acquisition of certain oil and gas properties and interests from Core Energy,
LLC, effective as of January 1, 2021 (the “Oil & Gas Properties Acquisition”). On December 14, 2020, the Company entered
into an asset purchase and sale agreement (the “Agreement”) with Core Energy, as well as all of the members of Core, Mandalay
LLC and Coal Creek Energy, LLC, to purchase certain oil and gas properties in the Central Kansas Uplift geological formation, covering
over 11,000 contiguous acres, including, among other things, the production and mineral rights to and a leasehold interest in the Oil
& Gas Properties and all contracts, agreements and instruments. The Agreement provided for an aggregate purchase price consisting
of $900,000 in cash at closing.
The
following represents the purchase price allocation for the Oil & Gas Properties Acquisition for $900,000 in cash. The Oil & Gas
Property Acquisition qualify as an asset acquisition. As such, AMGAS recognized the assets acquired and liabilities assumed at their
fair values as of April 1, 2021, the date of closing. The fair value of the Oil & Gas Properties acquired approximate the value of
the consideration paid, and the asset retirement obligation to be assumed, which management has concluded approximates the fair value
that would be paid by a typical market participant. As a result, neither goodwill nor a bargain purchase gain will be recognized related
to the acquisition.
The
Company determined the amount of the asset retirement obligation assumed to be $13,425 as of the date of acquisition. The obligation
relates to legal requirements associated with the retirement of long-lived assets that result from the acquisitions, construction, development,
or normal use of the asset. The obligation relates primarily to the requirement to plug and abandon oil and natural gas wells and support
wells at the conclusion of their useful lives.
The
following table summarizes the allocation of the assets acquired and the liabilities assumed related to the Oil & Gas Properties:
Schedule
of Oil and Gas Properties Acquired
| |
Amount | |
Oil and gas properties, subject to depreciation, depletion and amortization | |
$ | 913,425 | |
Asset retirement obligation assumed | |
| (13,425 | ) |
Total purchase price of the Oil & Gas Properties | |
$ | 900,000 | |
Note
3 – Debt Obligations
Debt
obligations is comprised of the following at December 31, 2021 and 2020:
Schedule of Debt Outstanding
| |
December 31, 2021 | | |
December 31, 2020 | |
Notes payable: | |
| | | |
| | |
| |
$ | 28,665 | | |
$ | — | |
3% Convertible promissory notes payable | |
$ | 28,665 | | |
$ | — | |
8% Convertible promissory notes payable (less discount of $273,726 and $-0- as of December 31, 2021 and 2020, respectively) | |
| 376,274 | | |
$ | — | |
Convertible note payable, (less discount of $-0- and $231,606 as of December 31, 2021 and 2020, respectively) | |
| — | | |
| 133,563 | |
Note payable | |
| — | | |
| 50,000 | |
Note payable | |
| — | | |
| 35,000 | |
| |
| | | |
| | |
Total notes payable | |
| 404,939 | | |
| 218,563 | |
Less: Long-term portion | |
| 28,665 | | |
| — | |
Notes payable, short-term | |
$ | 376,274 | | |
$ | 218,563 | |
Debt
obligations become due and payable as follows:
Schedule of Debt Obligations Maturities
Years ended | |
Principal balance due | |
| |
| |
2022 | |
$ | 376,274 | |
2023 | |
| — | |
2024 | |
| — | |
2025 | |
| — | |
2026 | |
| 28,665 | |
2027 | |
| — | |
Total | |
$ | 404,939 | |
3%
Convertible Promissory Notes Payable
On
March 31, 2021, the Company entered into Debt Settlement Agreements with six creditors (five of which were related parties) which extinguished
accounts payable and accrued liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of 3% Convertible
Promissory Notes (the “3% Notes”) with detachable warrants to purchase 5,732,994 shares of Common Stock for $0.50 per share.
The 3% Notes allow for prepayment at any time with all principal and accrued interest becoming due and payable at maturity on March 30,
2026 (“Maturity Date”). The 3% Notes are convertible as to principal and any accrued interest, at the option of the holder,
into shares of the Company’s Common Stock at any time after the issue date and prior to the close of business on the business day
preceding the Maturity Date at the rate of fifty cents ($0.50) per share, subject to normal and customary adjustment.
An
aggregate of $2,577,727 of the total accounts payable and accrued liabilities that were extinguished were with five related parties.
Such related parties were issued $25,777 principal balance of the 3% Convertible Promissory Notes and warrants to purchase 5,155,454
shares of Common Stock in exchange for the extinguishment of their respective debt obligations. See Note 10.
8%
Convertible Promissory Notes Payable
On
August 30, 2021, the Company and an accredited investor (the “8% Note Investor”) agreed whereby the Company issued an unsecured
convertible note due October 29, 2022 (the “8% Note”), with an aggregate principal face amount of approximately $100,000.
The 8% Note is, subject to certain conditions, convertible into an aggregate of 200,000 shares of Common Stock, at a price of $0.50 per
share. The Company also issued a five and one half-year common stock purchase warrant to purchase up to 200,000 shares of Common Stock
at an exercise price of $0.50 per share, subject to customary adjustments (the “8% Note Warrants”) which are immediately
exercisable. The 8% Note Investor purchased the 8% Note and 8% Note Warrant from the Company for an aggregate purchase price of $100,000
and the proceeds were used for general working capital purposes. The Company also granted the 8% Note Investor certain piggy-back registration
rights whereby the Company has agreed to register for resale the shares underlying the 8% Note Warrant and the conversion of the 8% Note
unless the shares of the Company commences to trade on the NYSE American; the Nasdaq Capital Market;
the Nasdaq Global Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after
the Closing Date.
On
October 29, 2021, the Company and three accredited investors (the “October 8% Note Investors”) agreed whereby the Company
issued an unsecured convertible note due October 29, 2022 (the “October 8% Note”), with an aggregate principal face amount
of approximately $550,000. The October 8% Notes are, subject to certain conditions, convertible into an aggregate of 1,100,000 shares
of Common Stock, at a price of $0.50 per share. The Company also issued five and one half-year common stock purchase warrants to purchase
up to 1,650,000 shares of Common Stock at an exercise price of $0.50 per share, subject to customary adjustments (the “October
8% Note Warrants”) which are immediately exercisable. The October 8% Note Investors purchased the October 8% Notes and October
8% Note Warrants from the Company for an aggregate purchase price of $550,000 and the proceeds were used for general working capital
purposes. The Company also granted the October 8% Note Investors certain piggy-back registration rights whereby the Company has agreed
to register for resale the shares underlying the October 8% Note Warrants and the conversion of the October 8% Notes unless the shares
of the Company commences to trade on the NYSE American; the Nasdaq Capital Market; the Nasdaq Global
Market; the Nasdaq Global Select Market; or the New York Stock Exchange, within one hundred twenty (120) days after the Closing
Date.
The
8% Note and the October 8% Notes all bear interest at a rate of eight percent (8%) per annum, may be voluntarily repaid in cash in full
or in part by the Company at any time in an amount equal to 120% of the principal amount of the underlying notes and any accrued and
unpaid interest. Fifty percent (50%) of the 8% Note and the October 8% Notes shall be mandatorily repaid in cash in an amount equal to
120% of the principal amount of the underlying notes and any accrued and unpaid interest in the event of the consummation by the Company
of any public or private offering or other financing pursuant to which the Company receives gross proceeds of at least $2,000,000 and
one-hundred percent (100%) of the underlying notes plus accrued interest shall be mandatorily repaid in an amount equal to 120% of outstanding
principal and interest in cases in which the Company receives gross proceeds of at least $3,000,000. In addition, pursuant to the 8%
Notes and the October 8% Notes, so long as the underlying notes remain outstanding, the Company cannot enter into any financing transactions
pursuant to which the Company sells its securities at a price lower than $0.50 cents per share without the written consent of the 8%
Note Investors.
The
conversion of the 8% Note and the October 8% Notes and the exercise of the underlying warrants are each subject to beneficial ownership
limitations such that the 8% Note Investor and the October 8% Note Investors may not convert the underlying notes or exercise the underlying
warrants to the extent that such conversion or exercise would result in any of the investors being the beneficial owner in excess of
4.99% (or, upon election of the investors, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect
to the issuance of shares of Common Stock issuable upon such conversion or exercise, which beneficial ownership limitation may be increased
or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days
following notice to the Company.
The
Company and the 8% Note Investor and the October 8% Note Investors agreed that for so long as the underlying warrants remain outstanding,
the investor have the right to participate in any issuance of Common Stock, conventional debt, or a combination of such securities and/or
debt, up to an amount equal to thirty-five percent (35%) of such subsequent financing.
The
underlying notes and warrants contain customary events of default, representations, warranties, agreements of the Company and the investors
and customary indemnification rights and obligations of the parties thereto, as applicable.
As
described in Note 1 the Company elected to early adopt ASU 2020-06 using the modified retrospective method which enables entities to
apply the transition requirements in this ASU at the effective date of ASU 2020-06 (rather than as of the earliest comparative period
presented) with the effect of initially adopting ASU 2020-06 recognized as a cumulative-effect adjustment to retained earnings (accumulated
deficit) on the first day of the period adopted.
The
Company has applied ASU-2020-06 to all outstanding financial instruments as of January 1, 2021, (the date of adoption of ASU 2020-06)
and those entered into after January 1, 2021 including the 8% Note. As a result, the 8% Note and October 8% Notes were required to be
separated into its debt and equity components based on their relative fair values because of the issuance of detachable warrants together
with the 8% Note and the October 8% Notes. Accordingly, the Company allocated the proceeds of the 8% note as follows:
Schedule of Convertible Promissory Note with Detachable Warrants to Purchase Common Stock
| |
Amount | |
Proceeds allocated to 8% convertible note | |
$ | 314,104 | |
Proceeds allocated to detachable warrants to purchase common stock | |
| 335,896 | |
| |
| | |
Total proceeds | |
$ | 650,000 | |
The
8% Note and October 8% Notes were recorded at their par value less the discount established at its origination date. The note discount
is amortized over the term of the convertible note utilizing the level-interest method. The following is the assumptions used in calculating
the estimated grant-date fair value of the detachable warrants to purchase common stock granted in connection with the 8% Note and the
October 8% Note during the year ended December 31, 2021:
Schedule of Fair Value of Detachable Warrants to Purchase Common Stock Granted
| |
As of August 30, 2021 (issuance date) |
| |
As of October 30, 2021 (issuance date) | |
| |
|
| |
| |
Volatility – range | |
| 369.4 |
% | |
| 367.7 | % |
Risk-free rate | |
| 0.77 |
% | |
| 1.18 | % |
Contractual term | |
| 5.5 years |
| |
| 5.5 years | |
Exercise price | |
$ | 0.50 |
| |
$ | 0.50 | |
Number of warrants in aggregate | |
| 200,000 |
| |
| 1,650,000 | |
Following
is a summary of activity relative to the 8% Note and October 8% Notes as for the year ended December 31, 2021:
Schedule of Convertible Debt
| |
Amount | |
Balance December 31, 2020 – 8% Convertible Notes | |
$ | — | |
Issuance of 8% Note, at par | |
| 100,000 | |
Discount on 8% Note at issuance date | |
| (35,897 | ) |
Issuance of October 8% Notes, at par | |
| 550,000 | |
Discount on October 8% Notes at issuance date | |
| (299,999 | ) |
Amortization of discount during the period to interest expense | |
| 62,170 | |
| |
| | |
Balance December 31, 2021 - 8% Convertible Notes | |
$ | 376,274 | |
Convertible
Note Payable
On
August 19, 2020, the Company entered into a securities purchase agreement with an accredited investor (the “August Investor”)
for the Company’s senior unsecured convertible note due August 19, 2021 (the “August Note”), with an aggregate principal
face amount of approximately $365,169. The August Note was, subject to certain conditions, convertible into an aggregate of 3,943,820
shares of Common Stock, at a price of $0.10 per share. The Company also issued a five-year common stock purchase warrant to purchase
up to 800,000 shares of Common Stock at an exercise price of $0.50 per share, subject to customary adjustments (the “August Warrant”).
The August Warrant is immediately exercisable and on a cashless basis if the shares underlying such warrant have not been registered
within 180 days after the date of issuance. The August Investor purchased such securities from the Company for an aggregate purchase
price of $325,000. The Company also granted the August Investor certain automatic and piggy-back registration rights whereby the Company
has agreed to register the resale by the August Investor of the shares underlying the August Warrant and the conversion of the August
Note.
The
August Note bore interest at a rate of eight percent (8%) per annum with 12 months guaranteed, may be voluntarily repaid in cash in full
or in part by the Company at any time in an amount equal to 115% of the principal amount of the August Note and any accrued and unpaid
interest, and shall be mandatorily repaid in cash in an amount equal to 115% of the principal amount of the August Note and any accrued
and unpaid interest in the event of the consummation by the Company of any public or private offering or other financing pursuant to
which the Company receives gross proceeds of at least $2,500,000. In addition, pursuant to the August Note, so long as the August Note
remained outstanding, the Company could not enter into any financing transactions pursuant to which the Company sells its securities
at a price lower than ten cents per share without written consent of the August Investor.
The
conversion of the August Note and the exercise of the August Warrant are each subject to beneficial ownership limitations such that the
August Investor may not convert the August Note or exercise the August Warrant to the extent that such conversion or exercise would result
in the August Investor being the beneficial owner in excess of 4.99% (or, upon election of the August Investor, 9.99%) of the number
of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon such
conversion or exercise, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided
that any increase in such limitation will not be effective until 61 days following notice to the Company.
The
Company and the August Investor agreed that for so long as the August Note and August Warrant remains outstanding, the August Investor
has a right to participate in any issuance of Common Stock, conventional debt, or a combination of such securities and/or debt, up to
an amount equal to thirty-five percent (35%) of such subsequent financing.
The
August Note and August Warrant each contain customary events of default, representations, warranties, agreements of the Company and the
August Investor and customary indemnification rights and obligations of the parties thereto, as applicable.
As
described in Note 1 the Company elected to early adopt ASU 2020-06 using the modified retrospective method which enables entities to
apply the transition requirements in this ASU at the effective date of ASU 2020-06 (rather than as of the earliest comparative period
presented) with the effect of initially adopting ASU 2020-06 recognized as a cumulative-effect adjustment to retained earnings (accumulated
deficit) on the first day of the period adopted.
The
Company applied ASU-2020-06 to all outstanding financial instruments as of January 1, 2021, (the date of adoption of ASU 2020-06). The
convertible notes payable issued on August 19, 2020 was the only outstanding financial instrument effected by this new accounting standard
as of January 1, 2021. Therefore the application of ASU-2020-06 to this convertible note payable was used to determine the cumulative
effect of the adoption of the new accounting standard. The cumulative effect of the adoption of the new accounting standard was determined
and recognized as an adjustment to the opening balance of retained earnings (accumulated deficit) which resulted in an increase to the
carrying value of convertible notes payable as of January 1, 2021 by $160,900, a decrease to additional paid in capital of $252,961 and
a decrease to accumulated deficit of $92,061. See Note 1.
On
March 26, 2021, the Company exercised its right to retire the August Note in conjunction with the issuance of Convertible Preferred Stock
(See Note 3 and 10). In accordance with the prepayment provisions contained in the August Note, the Company paid all principal, accrued
interest and the 15% prepayment premium as follows:
Schedule of Prepayment of Note
| |
Amount | |
Principal balance at par | |
$ | 365,169 | |
Remaining discount included in principal balance | |
| (44,883 | ) |
Accrued interest | |
| 17,448 | |
Prepayment premium (including remaining discount due to early retirement) | |
| 115,805 | |
| |
| | |
Total payment to retire the August Note | |
$ | 453,539 | |
The
prepayment premium was charged to non-operating expense as a loss from retirement of convertible note payable (See Note 10).
Following
is a summary of the August Note as for the year ended December 31, 2021:
Summary of Amortization and Retirement of Note
| |
Amount | |
Balance December 31, 2020 - August Note | |
$ | 133,563 | |
Cumulative effect of adoption of ASU 2020-06 | |
| 160,900 | |
Amortization of discount through the March 26, 2021 retirement date | |
| 25,823 | |
Remaining discount recognized as a loss from retirement of convertible note payable | |
| 44,883 | |
Retirement of August Note at par value on March 26, 2021 | |
| (365,169 | ) |
| |
| | |
Balance December 31, 2021 - August Note | |
$ | — | |
Note
Payable – Short-term
On
December 27, 2013, the Company borrowed $1,050,000 under an unsecured credit facility with a private, third-party lender. The facility
is represented by a promissory note (the “December 2013 Note”) with an original maturity date of March 12, 2014.
In
connection with the December 2013 Note, the Company granted the lender a warrant (the “December 2013 Warrant”) exercisable
to purchase 100,000 shares of its Common Stock at an exercise price of $15.00 per share. In connection with an extension to April 2015,
the Company and such lender amended the date for exercise of the December 2013 Warrant to be a period commencing April 7, 2015 and expiring
on the third anniversary of such date. The Company issued no additional warrants to the lender in connection with the extension of the
December 2013 Note to the new April 2015 maturity date (the “New Maturity Date”). If the Company failed to pay the December
2013 Note on or before the New Maturity Date, the number of shares issuable under the December 2013 Warrant increases to 1,333,333 and
the exercise price drops to $0.75 per share. All other terms of the December 2013 Warrant remained the same. The December 2013 Warrant
has been treated as a derivative liability whereby the value of December 2013 Warrant is estimated at the date of grant and recorded
as a derivative liability and as a discount on the note payable. The warrant liability is revalued to fair value at each reporting date
with the corresponding income (loss) reflected in the statement of operations as change in derivative liability. The discount is amortized
ratably through the original maturity date and each of the extended maturity dates. The December 2013 Warrant expired as of December
31, 2020 and is no longer exercisable.
In
connection with an additional extension of the December 2013 Note to April 7, 2016, the Company agreed to enter into a definitive revenue
sharing agreement with the lender (the “Revenue Sharing Agreement”) to grant the lender under the Revenue Sharing Agreement
an irrevocable right to receive a monthly payment equal to one half of one percent (1/2%) of the gross revenue derived from the share
of all hydrocarbons produced at the wellhead from the Nicaraguan Concessions and any other oil and gas concessions that the Company and
its affiliates may acquire in the future. This percentage increased to one percent (1%) when the Company did not pay the December 2013
Note in full by August 7, 2014. Therefore, the Revenue Sharing Agreement is fixed at one percent (1%). The value of the one percent (1.0%)
definitive Revenue Sharing Agreement granted to the lender as consideration for the extension of the maturity date to December 7, 2014
was estimated to be $964,738. Such amount was recorded as a reduction of oil and gas properties and as a discount on the December 2013
Note and amortized ratably over the extended term of such note. Such prospective Revenue Sharing Agreement is void with the abandonment
of the Nicaraguan Concessions.
In
connection with the extension of the maturity date of the December 2013 Note to April 7, 2016, the Company also (i) issued the lender
20,000 shares of restricted Common Stock; (ii) decreased the exercise price of the December 2013 Warrant to $5.00 per share and extended
the term of the December 2013 Warrant to a period commencing on the New Maturity Date and expiring on the third anniversary of such date;
and (iii) paid $50,000 toward amounts due under the December 2013 Note. The Company issued no additional warrants to the lender in connection
with the extension of the December 2013 Note to the New Maturity Date. If the Company failed to pay the December 2013 Note on or before
the New Maturity Date, the number of shares issuable under the December 2013 Warrant increases to 1,333,333 and the exercise price drops
to $0.75 per share. All other terms of the warrant remained the same. The Company failed to make the required payment previously described
and the reset of the terms of the December 2013 Warrant occurred, however such warrant expired in March 2017 unexercised. The December
2013 Note may be prepaid without penalty at any time. The December 2013 Note is subordinated to all existing and future senior indebtedness,
as such terms are defined in the December 2013 Note. The December 2013 Note was in default and the parties agreed to a resolution to
this default, including completing the extinguishment of the note balance, accrued interest and revenue sharing agreement through an
exchange agreement which is further described below.
The
December 2013 Warrant was treated as a derivative liability whereby the value of the December 2013 Warrant is estimated at the date of
grant and recorded as a derivative liability and as a discount on the note payable. The warrant liability was revalued to fair value
at each reporting date with the corresponding income (loss) reflected in the statement of operations as change in derivative liability.
The December 2013 Warrant expired in 2019 and is not deemed outstanding as of December 31, 2021 and 2020. The discount was amortized
ratably through the original maturity date and each of the extended maturity dates. The Company recognized the value of the 20,000 shares
of Common Stock issued ($104,000) and the increased value of the outstanding warrants due to the decrease in their exercise price ($68,716)
as an additional discount on the December 2013 Note to be amortized ratably over the extended term of such note.
On
September 24, 2020, the Company entered into an Exchange and Settlement Agreement (the “September Exchange Agreement”) with
the December 2013 Note holder (the “Holder”), pursuant to which the Holder agreed to exchange the December 2013 Note in the
original principal amount of $1,050,000, representing outstanding principal balance of $1,000,000 and accrued and unpaid interest thereon
(which totaled $542,762 as of September 24, 2020), for (i) a cash payment in the amount of $100,000 and (ii) 737,532 newly issued shares
of Common Stock (the “Exchange”).
In
connection with the September Exchange Agreement, the Company and the Holder agreed to terminate the following agreements: (i) the preemptive
rights agreement, dated as of December 27, 2013, between the Company and the Holder, (ii) the revenue sharing agreement, dated as of
May 30, 2014, between the Company and the Holder, and (iii) the indemnity agreement, dated as of December 27, 2013, between the Company
and the Holder. Additionally, pursuant to the September Exchange Agreement, the Holder acknowledged the expiration on March 12, 2017,
by its terms, of a common stock purchase warrant, issued to the Holder, for the purchase of up to 100,000 shares of Common Stock. The
Company and the Holder also agreed to provide mutual limited releases, releasing each of them from all liabilities and obligations to
the other, as between them with respect to claims relating to the December 2013 Note, such preemptive rights agreement, the Holder’s
warrant and all other agreements relating thereto.
The
closing of the Exchange occurred concurrently with the execution of the September Exchange Agreement. At the closing, the Company made
the $100,000 cash payment and issued 737,532 shares of Common Stock (valued at $132,756 based on the closing market price of the Common
Stock on the date of the Exchange) to the Holder and the underlying documents and obligations summarized above were surrendered and/or
cancelled.
A
summary of the gain on exchange and extinguishment of debt and the related accrued interest as of and for the year ended December 31,
2020 follows:
Schedule of Gain on Extinguishment of Debt
| |
Amount | |
Principal balance of December 2013 Note extinguished as a result of the Exchange | |
$ | 1,000,000 | |
| |
| | |
Accrued interest extinguished as a result of the Exchange | |
| 542,762 | |
| |
| | |
Total obligations extinguished as a result of the Exchange | |
| 1,542,762 | |
| |
| | |
Cash payment to Holder as a result of the Exchange | |
| (100,000 | ) |
| |
| | |
Value of Common Stock issued as a result of the Exchange | |
| (132,756 | ) |
| |
| | |
Gain on extinguishment of debt and related accrued interest | |
$ | 1,310,006 | |
Gain on extinguishment of debt and related accrued interest – per basic share | |
$ | 0.09 | |
Gain on extinguishment of debt and related accrued interest – per fully-diluted share | |
$ | 0.08 | |
Other
notes payable
The
Company had short-term notes outstanding with entities or individuals as follows:
|
●
|
On
July 7, 2015, the Company borrowed a total of $50,000 from an individual under a convertible note payable with the conversion rate
of $5.60 per share. The term of such note was for a period of 90 days and bears interest at 8% per annum. In connection with the
loan and subsequent extensions, the Company issued the individual a warrant for the purchase of 5,000 shares of Common Stock at $5.60
per share for a period of five years from the date of such note and/or extensions. The ratchet provision in such warrant requires
that such warrant be accounted for as derivative liability. The related warrant derivative liability balance was $72 and $189 as
of April 1, 2021 (the extinguishment date) and December 31, 2020, respectively. See Note 6. |
|
|
|
|
|
On
April 1, 2021, the Company and the holder of the $50,000 note payable that was in default reached a settlement whereby the Company
issued a total of 145,000 shares of Common stock in exchange for the extinguishment of the outstanding principal, accrued interest
and associated common stock purchase warrants which totaled $72,874 as of April 1, 2021. The 145,000 shares issued to extinguish
the debt obligations were valued at $40,600 based on the closing market price on the date of the extinguishment. The extinguishment
of the debt obligations resulted in a gain of $32,274 which was recorded in the year ended December 31, 2021. |
|
|
|
|
●
|
On
July 15, 2015, the Company borrowed a total of $35,000 from an individual under a convertible note payable with the conversion rate
of $5.60 per share. The term of such note was for a period of 90 days and bears interest at 8% per annum. In connection with the
loan and subsequent extensions, the Company issued the individual a warrant for the purchase of 3,500 shares of Common Stock at $5.60
per share for a period of five years from the date of such note and/or extensions. The ratchet provision in such warrant requires
that such warrant be accounted for as derivative liability. The related warrant derivative liability balance was $50 and $132 as
of April 1, 2021 (the extinguishment date) and December 31, 2020, respectively. See Note 6. |
|
|
|
|
|
On
April 1, 2021, the Company and the holder of the $35,000 note payable that was in default reached a settlement whereby the Company
issued a total of 100,000 shares of Common stock in exchange for the extinguishment of the outstanding principal, accrued interest
and associated common stock purchase warrants which totaled $50,956 as of April 1, 2021. The 100,000 shares issued to extinguish
the debt obligations were valued at $28,000 based on the closing market price on the date of the extinguishment. The extinguishment
of the debt obligations resulted in a gain of $22,956 which was recorded in the year ended December 31, 2021. |
Note
4 – Accrued liabilities
Accrued
liabilities consist of the following at December 31, 2021 and 2020:
Schedule of Accrued Liabilities
| |
December 31, 2021 | | |
December 31, 2020 | |
Accrued compensation (see Notes 3 and 13) | |
$ | — | | |
$ | 1,425,708 | |
Accrued board of director fees (see Notes 3 and 13) | |
| — | | |
| 363,500 | |
Accrued accounting services – Related party (see Notes 3 and 13) | |
| — | | |
| 762,407 | |
Accrued rent | |
| 614,918 | | |
| 614,918 | |
Accrued Nicaragua Concession fees | |
| 544,485 | | |
| 544,485 | |
Accrued financing costs – Related party (see Notes 3 and 13) | |
| — | | |
| 26,113 | |
Accrued franchise taxes | |
| — | | |
| 449 | |
| |
| | | |
| | |
Total accrued liabilities | |
$ | 1,159,403 | | |
$ | 3,737,580 | |
The
accrued rent balances relate to unpaid rent for the Company’s previous headquarters in Denver Colorado and represents unpaid rents
and related costs for the period June 2006 through November 2008. The Company has not had any correspondence with the landlord for several
years and will seek to settle and/or negotiate the matter when it has the financial resources to do so.
The
accrued Nicaraguan Concession fees were accrued during the time the Concessions had lapsed and the Company was attempting to negotiate
extensions to the underlying concessions with the Nicaraguan government which were unsuccessful. The Company abandoned all efforts to
negotiate an extension to the Concessions effective January 1, 2020 and ceased the accrual of all related fees at that time.
On
March 31, 2021, the Company and six creditors entered into Debt Settlement Agreements which extinguished accounts payable and accrued
liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of 3% Convertible Promissory Notes with
detachable warrants to purchase 5,732,994 shares of Common Stock for $0.50 per share. Such creditors included those described in the
above table as: 1) accrued compensation, 2) accrued board of director’s fees, 3) accrued accounting services and 4) accrued financing
costs. (See Note 3, 7 and 13)
Note
5 – Stock-Based Compensation
Total
stock-based compensation is comprised of the following for the years ended December 31, 2021 and 2020:
Schedule
of Stock-based Compensation
| |
2021 | | |
2020 | |
| |
Year Ended December 31, | |
| |
2021 | | |
2020 | |
Stock-based compensation – stock option grants | |
$ | 178,498 | | |
$ | — | |
| |
| | | |
| | |
Stock-based compensation – restricted stock grants | |
| 325,000 | | |
| 236,225 | |
| |
| | | |
| | |
Stock-based compensation – warrants issued for services pursuant to USNG Letter Agreement (See Note 7) | |
| 47,370 | | |
| — | |
| |
| | | |
| | |
Total stock-based compensation | |
$ | 550,868 | | |
$ | 236,225 | |
The
Company applies ASC 718, Stock Compensation, which requires companies to recognize compensation expense for share-based payments
based on the estimated fair value of the awards. ASC 718 also requires tax benefits relating to the deductibility of increases in the
value of equity instruments issued under share-based compensation arrangements to be presented as financing cash inflows in the statement
of cash flows. Compensation cost is recognized based on the grant-date fair value for all share-based payments granted and is estimated
in accordance with the provisions of ASC 718.
At
the Annual Meeting of Stockholders held on October 13, 2021 and the stockholders approved the 2021 Plan and the Company
reserved 5,000,000 shares
for issuance under the 2021 Plan. At the Annual Meeting of Stockholders held on September 25, 2015 and the stockholders approved the
2015 Plan and the Company reserved 500,000 shares
for issuance under the 2015 Plan.
The
2021 Plan and the 2015 Plan provide for under which both incentive and non-statutory stock options may be granted to employees, officers,
non-employee directors and consultants. An aggregate of 5,500,000 shares of the Company’s Common Stock is reserved for issuance
under the 2021 and 2015 Plan. Options granted under the 2021 Plan and 2015 Plan allow for the purchase of shares of Common Stock at prices
not less than the fair market value of such stock at the date of grant, become exercisable immediately or as directed by the Company’s
Board of Directors and generally expire ten years after the date of grant. The Company has issued stock options and restricted stock
awards that are not pursuant to a formal plan with terms similar to the 2021 and 2015 Plans.
As
of December 31, 2021, 5,500,000 shares were available for future grants under the 2021 Plan and the 2015 Plan. All other Plans have now
expired.
The
fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model, which requires the input
of subjective assumptions, including the expected term of the option award, expected stock price volatility and expected dividends. These
estimates involve inherent uncertainties and the application of management judgment. For purposes of estimating the expected term of
options granted, the Company aggregates option recipients into groups that have similar option exercise behavioral traits. Expected volatilities
used in the valuation model are based on the expected volatility based on historical volatility. The risk-free rate for the expected
term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company’s forfeiture rate assumption
used in determining its stock-based compensation expense is estimated based on historical data. The actual forfeiture rate could differ
from these estimates. There were 1,800,000 options granted during the year ended December 31, 2021 and there were no stock options granted
during the year ended December 31, 2020.
Stock
option grants
The
following table summarizes stock option activity for years ended December 31, 2021 and 2020:
Summary of Stock Option Activity
| |
Number of Options | | |
Weighted Average Exercise Price Per Share | | |
Weighted Average Remaining Contractual Term | | |
Aggregate Intrinsic Value | |
Outstanding at December 31, 2019 | |
| 332,000 | | |
$ | 41.86 | | |
| 2.29 years | | |
$ | — | |
Granted | |
| — | | |
| — | | |
| | | |
| | |
Exercised | |
| — | | |
| — | | |
| | | |
| | |
Forfeited | |
| — | | |
| — | | |
| | | |
| | |
Outstanding at December 31, 2020 | |
| 332,000 | | |
$ | 41.86 | | |
| 1.28 years | | |
$ | — | |
Granted | |
| 1,800,000 | | |
| 0.50 | | |
| | | |
| | |
Exercised | |
| — | | |
| — | | |
| | | |
| | |
Forfeited | |
| (240,000 | ) | |
| (46.41 | ) | |
| | | |
| | |
Outstanding at December 31, 2021 | |
| 1,892,000 | | |
$ | 1.93 | | |
| 9.07 years | | |
$ | — | |
Outstanding and exercisable at December 31, 2021 | |
| 92,000 | | |
$ | 30.00 | | |
| 2.03 years | | |
$ | — | |
The
following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable
options under the Company’s option plans as of December 31, 2021:
Summary
of Exercise Prices and Weighted Average Remaining Contractual Life
| | |
Outstanding options | | |
Exercisable options | |
Exercise price per share | | |
Number of options | | |
Weighted average remaining contractual life | | |
Number of options | | |
Weighted average remaining contractual life | |
| | |
| | |
| | |
| | |
| |
$ | 0.50 | | |
| 1,800,000 | | |
| 9.43 years | | |
| — | | |
| — | |
$ | 30.00 | | |
| 92,000 | | |
| 2.03 years | | |
| 92,000 | | |
| 2.03 years | |
| | | |
| | | |
| | | |
| | | |
| | |
| Total | | |
| 1,892,000 | | |
| 9.07 years | | |
| 92,000 | | |
| 2.03 years | |
The
following is the assumptions used in calculating the estimated grant-date fair value of the stock options granted during the year ended
December 31, 2021:
Schedule of Stock Option Valuation Assumption
| |
As of June 4, 2021 (issuance date) | |
| |
| |
Volatility – range | |
| 286.6 | % |
Risk-free rate | |
| 1.56 | % |
Contractual term | |
| 10.0 years | |
Exercise price | |
$ | 0.50 | |
Number of options in aggregate | |
| 1,800,000 | |
The
Company recorded stock-based compensation expense in connection with the vesting of stock options granted aggregating $178,498 and $-0-
for the years ended December 31, 2021 and 2020, respectively.
The
total grant date fair value of the 1,800,000 stock options issued during the year ended December 31, 2021 was $305,997 in total or $0.17
per share and there were no stock options granted during the year ended December 31, 2020.
The
intrinsic value as of December 31, 2021 related to the vested and unvested stock options as of that date was $-0-. The unrecognized compensation
cost as of December 31, 2021 related to the unvested stock options as of that date was $127,499 which will be amortized over the next
five months in accordance with the respective vesting scale.
Restricted
stock grants.
During
August 2020 the Board of Directors granted 5,000,000 shares of restricted stock awards to our officers, directors and a consultant. During
October 2019 the Board of Directors granted 2,000,000 shares of restricted stock awards to our new Chief Operating Officer. Restricted
stock awards are valued on the date of grant and have no purchase price for the recipient. Restricted stock awards typically vest over
a period of time generally corresponding to yearly anniversaries of the grant date. Unvested shares of restricted stock awards may be
forfeited upon the termination of service of employment with the Company, depending upon the circumstances of termination. Except for
restrictions placed on the transferability of restricted stock, holders of unvested restricted stock have full stockholder’s rights,
including voting rights and the right to receive cash dividends.
A
summary of all restricted stock activity under the equity compensation plans for the years ended December 31, 2021 and 2020 is as follows:
Schedule of Restricted Stock Unit Activity
| |
Number of Restricted shares | | |
Weighted average grant date fair value | |
Nonvested balance, December 31, 2019 | |
| 750,000 | | |
$ | 0.13 | |
Granted | |
| 5,000,000 | | |
| 0.13 | |
Vested | |
| (2,000,000 | ) | |
| (0.13 | ) |
Forfeited | |
| — | | |
| — | |
Nonvested balance, December 31, 2020 | |
| 3,750,000 | | |
| 0.13 | |
Granted | |
| — | | |
| — | |
Vested | |
| (2,500,000 | ) | |
| (0.13 | ) |
Forfeited | |
| — | | |
| — | |
Nonvested balance, December 31, 2021 | |
| 1,250,000 | | |
$ | 0.13 | |
The
Company recorded stock-based compensation expense in connection with the issuance/vesting of restricted stock grants aggregating $325,000
and $236,225 during the years ended December 31, 2021 and 2020, respectively.
The
Company estimated the fair market value of these restricted stock grants based on the closing market price on the date of grant. As of
December 31, 2021, there were $162,500 of total unrecognized compensation costs related to all remaining non-vested restricted stock
grants, which will be amortized over the next six months in accordance with the respective vesting scale.
The
nonvested balance of restricted stock vests as follows:
Schedule of Nonvested Restricted Stock Unit Activity
Years ended | |
Number of shares | |
| |
| |
2022 | |
| 1,250,000 | |
2023 | |
| — | |
Note
6 – Derivative Instruments
The
estimated fair value of the Company’s derivative liabilities, all of which were related to the detachable warrants issued in connection
with various notes payable, were estimated using a closed-ended option pricing model utilizing assumptions related to the contractual
term of the instruments, estimated volatility of the price of the Company’s common stock and current interest rates. The detachable
warrants issued in connection with the two other short-term notes payable (See Note 3) contained ratchet and anti-dilution provisions
that remain in effect during the term of the warrants while the ratchet and anti-dilution provisions of the other notes payable cease
when the related note payable is extinguished.
On
April 1, 2021, the outstanding warrants treated as derivatives and the related notes payable containing such ratchet and anti-dilution
provisions were extinguished through an exchange transaction as described in Note 3. Therefore, the derivative liability was adjusted
to fair value and extinguished and included in the gain on extinguishment of notes payable as of the termination date (See Note 10).
A
comparison of the assumptions used in calculating estimated fair value of such derivative liabilities as of the April 1, 2021 termination
date and December 31, 2020 is as follows:
Schedule of Estimated Fair Value of Derivative Liabilities
| |
As of April 1, 2021 (termination date) | | |
As of December 31, 2020 | |
| |
| | |
| |
Volatility – range | |
| 373.9 | % | |
| 379.4 | % |
Risk-free rate | |
| 0.92 | % | |
| 0.38 | % |
Contractual term | |
| 0.2 years | | |
| 0.5 – 0.8 years | |
Exercise price | |
$ | 5.60 | | |
$ | 5.60 | |
Number of warrants in aggregate | |
| 8,500 | | |
| 17,000 | |
The
following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial instruments,
measured at fair value on a recurring basis using significant unobservable inputs for both open and closed derivatives:
Summary of Changes in Fair Value Derivative Financial Instruments
| |
Amount | |
Balance at December 31, 2020 | |
$ | 321 | |
Unrealized derivative gains included in other income/expense for the period | |
| (199 | ) |
Extinguishment of derivative liability as part of the exchange of debt for common stock (See Note 3 & 6) | |
| (122 | ) |
| |
| | |
Balance at December 31, 2021 | |
$ | — | |
Note
7 – Warrants
The
following table summarizes warrant activity for the years ended December 31, 2021 and 2020:
Summary of Warrant Activity
| |
Number of Warrants | | |
Weighted Average Exercise Price Per Share | |
Outstanding and exercisable at December 31, 2019 | |
| 946,943 | | |
$ | 1.78 | |
Issued pursuant to convertible note agreements (see Note 3) | |
| 800,000 | | |
| 0.50 | |
Forfeited/expired | |
| (218,563 | ) | |
| (5.05 | ) |
| |
| | | |
| | |
Outstanding and exercisable at December 31, 2020 | |
| 1,528,380 | | |
| 0.65 | |
Issued in connection with issuance of Series A convertible preferred stock (See Note 3) | |
| 5,256,410 | | |
| 0.39 | |
Issued in connection with issuance of 3% convertible promissory notes (see Note 3 & 13) | |
| 5,732,994 | | |
| 0.50 | |
Issued in connection with issuance of 8% convertible promissory notes (see Note 3) | |
| 1,850,000 | | |
| 0.50 | |
Issued pursuant to USNG Letter Agreement | |
| 3,260,000 | | |
| 0.50 | |
Forfeited/expired | |
| (47,000 | ) | |
| (5.22 | ) |
| |
| | | |
| | |
Outstanding and exercisable at December 31, 2021 | |
| 17,580,784 | | |
$ | 0.47 | |
The
weighted average term of all outstanding common stock purchase warrants was 4.6 years as of December 31, 2021. The intrinsic value of
all outstanding common stock purchase warrants and the intrinsic value of all vested common stock purchase warrants was zero as of December
31, 2021.
The
following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable
warrants to purchase common shares as of December 30, 2021:
Summary
of Warrant Range of Exercise Prices and Weighted Average Remaining Contractual Life
| | |
Outstanding and exercisable warrants | |
Exercise price per share | | |
Number of warrants | | |
Weighted average remaining
contractual life | |
$ | 0.39 | | |
| 5,256,410 | | |
| 4.7 years | |
$ | 0.50 | | |
| 12,324,374 | | |
| 4.5 years | |
| | | |
| | | |
| | |
Total | | |
| 17,580,784 | | |
| 4.6
years | |
Warrants
issued pursuant to USNG Letter Agreement
On
November 9, 2021, the Company entered into a letter agreement (the “USNG Letter Agreement”) with U.S. Noble Gas, LLC
(“USNG”), pursuant to which USNG will provide consulting services to the Company for exploration, testing, refining, production,
marketing and distribution of various potential reserves of noble gases and rare earth element/minerals on the Company’s recently
acquired 11,000-acre
oil & gas properties in the Otis Albert Field located on the Central Kansas Properties. The USNG Letter Agreement would cover all
of the noble gas, specifically including helium, and rare earth elements/minerals potentially existing on the Central Kansas Properties
and the Company’s future acquisitions, if any.
The
USNG Letter Agreement also provides that USNG will supply a large vessel designed for flows up to 5,000 barrels of water per day at low
pressures, known as a gas extraction/separator unit. The gas extraction/separator unit is a dewatering vessel that the Company may use
for multiple wells in the future.
The
USNG Letter Agreement requires the Company to establish a four-member board of advisors (the “Board of Advisors”) comprised
of various experts involved in noble gas and rare earth elements/minerals. The Board of Advisors will help attract both industry partners
and financial partners for developing a large helium, noble gas and/or rare earth element/mineral resources that may exist in the region
where the Company currently operates. The industry partners would include helium, noble gas and/or rare earth element/mineral purchasers
and exploration and development companies from the energy industry. The financial partners may include large family offices or small
institutions.
The
Company will pay USNG a monthly cash fee equal to $8,000 per month beginning at the onset of commercial helium or minerals production
and sales, subject to certain thresholds. Such monthly fees will become due and payable for any month that AMGAS receives cash receipts
in excess of $25,000 derived from the sale of noble gases and/or rare earth elements/minerals. The Company has not yet achieved the $25,000
cash receipts threshold, therefore there has been no payment or accrual liability relative to this cash fee provision as of December
31, 2021.
In
consideration for the consulting services to be rendered and pursuant to the terms of the USNG Letter Agreement, the Company issued warrants
to purchase, in the aggregate, 2,060,000 shares of its common stock, par value $0.0001 per share (the “Common Stock”), at
an exercise price of $0.50 (the “Exercise Price”) to three of USNG’s principal consultants and four third-party service
providers. The Company was also required to issue warrants to purchase, in the aggregate, 1,200,000 shares of Common Stock at $0.50 per
share exercise price to three members of the Board of Advisors. The Company granted a total of 3,260,000 warrants to purchase its Common
Stock with an exercise price of $0.50 per share in connection with the USNG Letter Agreement and the arrangements described therein.
The warrants expire five years after the date of the USNG Letter Agreement.
The
fair value of the warrants to purchase common stock in consideration for services to be rendered under the USNG Letter Agreement with
USNG is estimated on the date of grant using the Black-Scholes option-pricing model, which requires the input of subjective assumptions,
including the expected term of the warrant, expected stock price volatility and expected dividends. These estimates involve inherent
uncertainties and the application of management judgment. For purposes of estimating the expected term of warrants granted, the Company
considered the historical pattern of warrant exercises behavioral traits and determined that the expected term should be 5 years. Expected
volatilities used in the valuation model are based on the expected volatility based on historical volatility. The risk-free rate for
the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company’s forfeiture
rate assumption used in determining its stock-based compensation expense is estimated based on historical data. The actual forfeiture
rate could differ from these estimates.
The
following is the assumptions used in calculating the estimated grant-date fair value of the warrants issued pursuant to the USNG Letter
Agreement granted during the year ended December 31, 2021:
Schedule of Warrants Valuation Assumption
| |
As of November 9, 2021 (issuance date) | |
| |
| |
Volatility – range | |
| 359.3 | % |
Risk-free rate | |
| 1.08 | % |
Expected term | |
| 5.0 years | |
Exercise price | |
$ | 0.50 | |
Number of warrants in aggregate | |
| 3,260,000 | |
The
Company recognized $47,370 of compensation expense relative to the 3,260,000 warrants to purchase common stock issued pursuant to the
USNG Letter Agreement during the year ended December 31, 2021. There have been no exercises or forfeitures of the warrants to purchase
common stock relative to the USNG Letter during the years ended December 31, 2021 and 2020.
The
total grant date fair value of the 3,260,000 warrants to purchase common stock issued pursuant to the USNG Letter Agreement during the
year ended December 31, 2021 was $1,434,313 in total or $0.44 per share. Total unrecognized compensation cost related to the 3,260,000
warrants to purchase common stock issued pursuant to the USNG Letter Agreement, as of December 31, 2021 was $1,386,943 which will be
amortized over the next fifty-eight months.
Note
8 – Stockholder’s Deficit
Name
change
At
the Annual Meeting of Stockholders held on October 13, 2021 the stockholders approved an amendment
to the Company’s Certificate of Incorporation, as amended, changing the Company’s name to American Noble Gas, Inc.
Stockholder
Written Consent Amendment
At
the Annual Meeting of Stockholders held on October 13, 2021 the stockholders approved an amendment
to the Company’s Certificate of Incorporation, as amended, removing the provision providing that any action taken by the stockholders
by written consent in lieu of a meeting requires that all of the Company’s stockholders entitled to vote on such action consent
in writing thereto.
2021
American Noble Gas, Inc. Stock Option and Restricted Stock Plan
At
the Annual Meeting of Stockholders held on October 13, 2021 and the stockholders approved the 2021 Plan and the Company reserved
5,000,000
shares for issuance under the 2021 Plan.
Reincorporation
in Nevada
On
December 7, 2021, pursuant to an Agreement and Plan of Merger, American Noble Gas, Inc., a Delaware corporation, merged with and into
its wholly owned subsidiary, American Noble Gas Inc, a Nevada corporation (“AMGAS-Nevada” and/or the “Company”)
with AMGAS-Nevada continuing as the surviving corporation. In conjunction with the merger, AMGAS-Nevada succeeded to the assets, continued
the business and assumed the rights and obligations of the predecessor Delaware corporation existing immediately prior to the merger.
The merger was consummated by the filing of a certificate of merger on December 7, 2021 with the Secretary of State of the State of Delaware
and articles of merger with the Secretary of State of the State of Nevada. The Agreement and Plan of Merger and transactions contemplated
thereby were adopted by the holders of a majority of the outstanding shares of the predecessor company’s common stock, par value,
$0.0001 per share and/or Series A Convertible Preferred Stock, par value $0.0001 per share, on an as-converted common stock basis, by
written consent in lieu of a special meeting of stockholders, in accordance with the Delaware General Corporation Law.
Pursuant
to the Agreement and Plan of Merger, (i) each outstanding share of predecessor’s common stock automatically converted into one
share of common stock, par value $0.0001 per share, of AMGAS-Nevada, (ii) each outstanding share of the predecessor’s series A
convertible preferred stock automatically converted into one share of series A convertible preferred stock, par value $0.0001 per share
of AMGAS-Nevada, and (iii) each outstanding option, right or warrant to acquire shares of predecessor common stock converted into an
option, right or warrant to acquire an equal number of shares of AMGAS-Nevada common stock under the same terms and conditions as the
original options, rights or warrants.
Similar
to the shares of predecessor common stock prior to the merger, the shares of AMGAS-Nevada common stock are quoted on the OTCQB tier operated
by the OTC Markets Group Inc. under the symbol “IFNY”. In accordance with the Agreement and Plan of Merger, each outstanding
certificate previously representing shares of the predecessor’s common stock or series A preferred stock automatically represents,
without any action of the predecessor’s stockholders, the same number of shares of AMGAS-Nevada common stock or series A preferred
stock, as applicable.
Pursuant
to the Agreement and Plan of Merger, the directors and officers of the Predecessor company immediately prior to the merger became the
directors and officers of AMGAS-Nevada and continued their respective directorship or services with the Company on the same terms as
their respective directorship or service with the predecessor registrant immediately prior to the merger.
As
a result of the merger, the internal affairs of the Company ceased to be subject to the Delaware General Corporation Law or governed
by the predecessor’s Delaware Certificate of Incorporation, as amended and its bylaws. As of the December 7, 2021 merger date,
the Company is now subject to the Nevada Revised Statutes and is governed by the Company’s Articles of Incorporation and Bylaws
as filed in the State of Nevada.
Common
Stock
At
the Annual Meeting of Stockholders held on October 13, 2021 the stockholders approved an amendment
to the Company’s Certificate of Incorporation, as amended, increasing the Company’s authorized shares of common stock from
75,000,000 shares to 500,000,000 shares.
As
of December 31, 2021 the Company is authorized to issue up to 500,000,000 common shares with a par value of $0.0001 per share.
Series
A Convertible Preferred Stock
As
of December 31, 2021, the Company is authorized to issue up to 10,000,000 preferred shares with a par value of $0.0001 per share.
The
following summarizes the activity in Series A Convertible Preferred Stock for the years ended December 31, 2021 and 2020:
Schedule
of Series A Convertible Preferred Stock Activity
| |
Number
of
Shares | |
Outstanding at December 31, 2019 | |
| — | |
Issued | |
| — | |
Converted to common stock | |
| — | |
| |
| | |
Outstanding at December 31, 2020 | |
| — | |
Issued | |
| 22,776 | |
Converted to common stock | |
| (700 | ) |
| |
| | |
Outstanding at December 31, 2021 | |
| 22,076 | |
On
March 16, 2021, the Company approved and filed a Certificate of Designation of Preferences, Rights and Limitations of the Series A Convertible
Preferred Stock (“COD”). The COD provides for the issuance of up to 27,778 shares of Series A Convertible Preferred Stock
with a stated/liquidation value of $100 per share. Pursuant to the provisions of the COD, the Series A Convertible Preferred Stock is
convertible, at the option of the holders thereof, at any time, subject to certain beneficial ownership limitations, into shares of Common
Stock determined on a per share basis by dividing the $100 stated/liquidation value of such share of Convertible Preferred Stock by the
$0.32 per share conversion price, which conversion price is subject to certain adjustments. In addition, the COD provides for the payment
of 10% per annum cumulative dividends, in (i) cash, or (ii) shares of Common Stock, to the holders of the Series A Convertible Preferred
Stock based on the stated/liquidation value, until the earlier of (i) the date on which the shares of Series A Convertible Preferred
Stock are converted to common stock or (ii) date the Company’s obligations under the COD have been satisfied in full. The shares
of Series A Convertible Preferred Stock also (i) vote on an as-converted to Common Stock basis, subject to certain beneficial ownership
limitations, (ii) are subject to mandatory conversion into Common Stock upon the closing of any equity financing transaction consummated
after the original issue date, pursuant to which the Company raises gross proceeds of not less than $5,000,000, (iii) rank senior to
the Common Stock and any class or series of capital stock created after the Series A Convertible Preferred Stock and (iv) have a special
preference upon the liquidation of the Company.
On
March 26, 2021 the Company entered into a securities purchase agreement with five (5) accredited investors providing for an aggregate
investment of $2,050,000 by the investors for the issuance by the Company to them of (i) 22,776 shares of Series A Convertible Preferred
Stock, par value $0.0001 per share, with a stated/liquidation value of $100 per share; and (ii) warrants, with a term of five and a half
(5.5) years, exercisable six (6) months after issuance, to purchase an aggregate of up to 5,256,410 shares of Common Stock at an exercise
price of $0.39 per share, subject to customary adjustments thereunder. The Series A Convertible Preferred stock is convertible into an
aggregate of up to 7,117,500 shares of Common Stock. Holders of the Warrants may exercise them by paying the applicable cash exercise
price or, if there is not an effective registration statement for the sale of the Warrant Shares within six (6) months following the
Closing Date, as defined in the Warrants, by exercising on a cashless basis pursuant to the formula provided in the Warrants. Net proceeds
from the issuance of Series A Convertible Preferred Stock totaled $1,929,089 after deducting the placement agent fee and other expenses
of the offering. The Company intends to use the proceeds of the Series A Convertible Preferred Stock offering to complete the acquisition
and development of the Properties, to pay-off the outstanding convertible notes payable (See Note 3) and for general working capital
purposes.
The
Company also entered into that certain registration rights agreement, pursuant to which the Company agreed to file a registration statement
within forty-five (45) days following the closing of the acquisition of the Properties which occurred on April 1, 2021 to register the
conversion shares and the warrant Shares. The Company is to use its best efforts to cause such registration statement to be declared
effective within forty-five (45) days after the filing thereof, but in any event no later than the ninetieth (90th) calendar
day following the closing of the acquisition of the Properties which occurred on April 1, 2021.
The
holders of the Series A Convertible Preferred Stock agreed to a 4.99% beneficial ownership cap that limits the investors’ ability
to convert its Series A Convertible Preferred Stock and/or exercise its common stock purchase warrants. Such limitation can be raised
to 9.99% upon 60 days advance notice to the Company.
The
Company has accrued and paid preferred dividends totaling $174,449 and $-0- relative to the Series A Convertible Preferred Stock which
was charged to additional paid in capital as during the years ended December 31, 2021 and 2020, respectively.
During
the year ended December 31, 2021, a holder of Series A Convertible Preferred Stock exercised its right to convert 700 shares of Series
A Convertible Preferred Stock into 218,750 shares of common stock.
Note
9 – Income Taxes
The
provision for income taxes consists of the following:
Schedule of Provision for Income Taxes
| |
2021 | | |
2020 | |
| |
For the Year Ended December 31, | |
| |
2021 | | |
2020 | |
| |
| | | |
| | |
Current income tax expense (benefit) | |
$ | — | | |
$ | — | |
Deferred income tax benefit | |
| — | | |
| — | |
Total income tax expense (benefit) | |
$ | — | | |
$ | — | |
The
effective income tax rate on continuing operations varies from the statutory federal income tax rate as follows:
Schedule of Income Statutory Federal Income Tax Rate
| |
For the Years Ended December
31, | |
| |
2021 | | |
2020 | |
Federal income tax rate | |
| 21.0 | % | |
| 21.0 | % |
State income tax rate | |
| 4.7 | | |
| 4.6 | |
Stock-based compensation | |
| (32.6 | ) | |
| 0.5 | |
Exchange of debt for equity instruments | |
| (38.7 | ) | |
| — | |
Change in valuation allowance | |
| 43.8 | | |
| (25.4 | ) |
Other, net | |
| 1.8 | | |
| (0.7 | ) |
| |
| | | |
| | |
Effective tax rate | |
| — | % | |
| — | % |
The
significant temporary differences and carry-forwards and their related deferred tax asset (liability) and deferred tax asset valuation
allowance balances are as follows:
Schedule of Deferred Tax Asset and Liability
| |
2021 | | |
2020 | |
| |
For the Years Ended December 31, | |
| |
2021 | | |
2020 | |
| |
| |
Deferred tax assets: | |
| | | |
| | |
Accruals and other | |
$ | 294,000 | | |
$ | 949,000 | |
Asset retirement obligations | |
| 435,000 | | |
| 435,000 | |
Prepaid expenses | |
| — | | |
| 20,000 | |
Stock-based compensation | |
| 340,000 | | |
| 811,000 | |
Alternative minimum tax credit carry-forward | |
| — | | |
| — | |
Net operating loss carry-forward | |
| 16,000,000 | | |
| 15,576,000 | |
Gross deferred tax assets | |
| 17,069,000 | | |
| 17,791,000 | |
Depreciation and amortization | |
| (14,000 | ) | |
| — | |
Net deferred tax assets | |
| 17,055,000 | | |
| 17,791,000 | |
Less valuation allowance | |
| (17,055,000 | ) | |
| (17,791,000 | ) |
Deferred tax asset | |
$ | — | | |
$ | — | |
The
effective income tax rate on earnings (loss) before income tax benefit varies from the 21% statutory federal income tax rate primarily
due to Company providing a 100% reserve on its net deferred tax assets as of December 31, 2021 and 2020.
During
the year ended December 31, 2021, the Company reduced its valuation allowance on net deferred tax assets by $736,000 while the valuation
allowance remained at 100% of all net deferred tax assets as of December 31, 2021. Accordingly, the Company determined there was not sufficient positive evidence regarding its
potential for future profits to outweigh the negative evidence of our three-year cumulative loss position under the guidance provided
in ASC 740. Therefore, it determined to continue to provide a 100% valuation allowance on its net deferred tax assets. The Company expects
to continue to maintain a full valuation allowance until it determines that it can sustain a level of profitability that demonstrates
its ability to realize these assets. To the extent the Company determines that the realization of some or all of these benefits is more
likely than not based upon expected future taxable income, a portion or all of the valuation allowance will be reversed.
For
income tax purposes, the Company has net operating loss carry-forwards of approximately $62,990,000 as of December 31, 2021, which expire
from 2025 through 2041.
The
Company has recently completed the filing of tax returns for the tax years 2012 through 2020. Therefore, all such tax returns are open
to examination by the Internal Revenue Service.
The
Internal Revenue Code contains provisions under Section 382 which limit a company’s ability to utilize net operating loss carry-forwards
in the event that it has experienced a more than 50% change in ownership over a three-year period. Management has completed its review
of whether such ownership changes have occurred, and based upon such review, management believes that the Company is not currently subject
to an annual limitation or the possibility of the complete elimination of the net operating loss carry- forwards. In addition, the Company
may be limited by additional ownership changes which may occur in the future.
Note
10 – Gain on Exchange and Extinguishment of Liabilities
During
the years ended December 31, 2021 and 2020, the Company recorded gains on the extinguishment of liabilities through the negotiation of
settlements with certain creditors and through the operation of law as follows:
Schedule of Estimated Gain on Exchange and Extinguishment of Debt
| |
2021 | | |
2020 | |
| |
Year ended December 31, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Gain (loss) on Exchange and Extinguishment of Liabilities: | |
| | | |
| | |
Gain on exchange and extinguishment of liabilities | |
$ | 124,177 | | |
$ | — | |
Gain from settlement of litigation (See Note 12) | |
| 23,000 | | |
| — | |
Loss from retirement of convertible note payable (See Notes 3) | |
| (115,805 | ) | |
| — | |
Extinguishment of trade payables | |
| — | | |
| 4,840,136 | |
Gain from exchange and extinguishment of notes payable (See Note 3) | |
| 55,230 | | |
| 1,310,006 | |
| |
| | | |
| | |
Total | |
$ | 86,602 | | |
$ | 6,150,142 | |
Gain
on exchange and extinguishment of liabilities
On
March 31, 2021, the Company entered into Debt Settlement Agreements with six creditors (five of which were related parties) which extinguished
accounts payable and accrued liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of 3% Convertible
Promissory Notes (the “3% Notes”) with detachable warrants to purchase 5,732,994 shares of Common Stock for $0.50 per share.
The 3% Notes allows for prepayment at any time with all principal and accrued interest becoming due and payable at maturity on March
30, 2026. The 3% Notes are convertible as to principal and any accrued interest, at the option of holder, into shares of the company’s
Common Stock at any time after the issue date and prior to the close of business on the business day preceding the Maturity Date at the
rate of fifty cents ($0.50) per share, subject to normal and customary adjustment.
The
warrants to purchase 5,732,994 shares of common stock issued pursuant to the Debt Settlement Agreements were valued at $1,605,178 using
the Black-Scholes methodology. The following assumptions were used in calculating the estimated fair value of the warrants as of March
31, 2021, their date of issuance:
Schedule
of Fair Value of Warrants Estimated Valuation Assumptions
| |
As of March 31, 2021 | |
| |
| |
Volatility – range | |
| 374.0 | % |
Risk-free rate | |
| 0.92 | % |
Contractual term | |
| 5.0 years | |
Exercise price | |
$ | 0.50 | |
Number of warrants in aggregate | |
| 5,732,994 | |
An
aggregate of $2,577,727 of the total accounts payable and accrued liabilities that were extinguished were with five related parties.
Such related parties were issued $25,777 principal balance of the 3% Convertible Promissory Notes and warrants to purchase 5,155,454
shares of Common Stock in exchange for the extinguishment of their respective debt obligations. The Company recognized a gain on extinguishment
of liabilities for the portion of the extinguishment with non-related parties. Furthermore, it recognized the portion of the gain on
extinguishment of liabilities with related parties as a contribution of capital.
The
gain on extinguishment of liabilities from the Debt Settlement Agreements was determined as follows:
Schedule of Gain on Extinguishment of Liabilities
| |
Amount | |
| |
| |
Total accounts payable and accrued liabilities extinguished | |
$ | 2,866,497 | |
Less: Principal balance of 3% Convertible Promissory Notes issued | |
| (28,665 | ) |
Less: Fair value of warrants to purchase common stock issued | |
| (1,605,178 | ) |
| |
| | |
Total gain on extinguishment of liabilities | |
$ | 1,232,654 | |
Less: Related party amounts reported as a capital contribution | |
| (1,108,477 | ) |
| |
| | |
Gain on extinguishment of liabilities | |
$ | 124,177 | |
Gain
on extinguishment of trade payables
The
Company incurred trade payable obligations totaling $4,840,136 during 2013 which were extinguished in 2020 pursuant to the relevant Statute
of Limitations.
Note
11 – Asset Retirement Obligations
The
Company’s asset retirement obligations primarily relate to the Company’s portion of future plugging and abandonment costs
for wells and related facilities. The following table presents the changes in the asset retirement obligations for the years ended December
31, 2021 and 2020:
Schedule of Assets Retirement Obligation
| |
Amount | |
| |
| |
Asset retirement obligation at December 31, 2019 | |
$ | 1,716,003 | |
Liabilities added | |
| — | |
Accretion expense during the period | |
| — | |
| |
| | |
Asset retirement obligation at December 31, 2020 | |
| 1,716,003 | |
Liabilities added from acquisition of Oil & Gas Properties (See Note 2) | |
| 13,425 | |
Accretion expense during the period | |
| 836 | |
| |
| | |
Asset retirement obligation at December 31, 2021 | |
$ | 1,730,264 | |
The
$1,716,003 asset retirement obligation existing at December 31, 2019 and 2020 and in years prior to 2019 represented the remaining potential
liability for wells AMGAS had owned in Texas and Wyoming prior to their sales/disposal in 2012. AMGAS was not in compliance with then
existing federal, state and local laws, rules and regulations for its previously owned Texas and Wyoming domestic oil and gas properties.
Regardless, that all previously owned domestic oil and gas properties held by Infinity – Wyoming and Infinity-Texas being disposed
of in 2012 and prior years; the Company may remain liable for certain asset retirement costs should the new owners not complete their
asset retirement obligations. Management believes the asset retirement obligations recorded relative to these Texas and Wyoming wells
of $1,716,003 as of December 31, 2021 and 2020 are sufficient to cover any potential noncompliance liabilities relative to the plugging
of abandoned wells, the removal of facilities and equipment, and site restoration on oil and gas properties for its former oil and gas
properties.
The
$13,425 asset retirement obligation assumed pursuant to an acquisition on April 1, 2021 and the related $836 accretion expense during
the year ended December 31, 2021 related to the acquisition of the Oil & Gas Properties as further described in Note 2.
Note
12 – Commitments and Contingencies
Lack
of Compliance with Law Regarding Domestic Properties
AMGAS
was not in compliance with then existing federal, state and local laws, rules and regulations for domestic oil and gas properties owned
and disposed of in 2012 and in years prior to 2012 and could have a material or significantly adverse effect upon the liquidity, capital
expenditures, earnings or competitive position of AMGAS. All domestic oil and gas properties held by Infinity – Wyoming and Infinity-Texas
were disposed of in 2012 and prior; however, the Company may remain liable for certain asset retirement costs should the new owners not
complete their obligations. Management believes the total asset retirement obligations recorded for these prior matters of $1,716,003
as of December 31, 2021 and 2020 are sufficient to cover any potential noncompliance liabilities relative to the plugging of abandoned
wells, the removal of facilities and equipment, and site restoration on oil and gas properties for its former oil and gas properties.
Litigation
The
Company is subject to various claims and legal actions in which vendors are claiming breach of contract due to the Company’s failure
to pay amounts due. The Company believes that it has made adequate provision for these claims in the accompanying financial statements.
The
Company is currently involved in litigation as follows:
●
|
In
October 2012 the State of Texas filed a lawsuit naming Infinity-Texas, the Company and the corporate officers of Infinity-Texas,
seeking $30,000 of reclamation costs associated with a single well, in addition to administrative expenses and penalties. The Company
engaged in negotiations with the State of Texas in late 2012 and early 2013 and reached a settlement agreement that would reduce
the aggregate liability, in this action and any extension of this to other Texas wells, to $45,103, which amount has been paid. Certain
performance obligations remain which must be satisfied in order to finally settle and dismiss the matter. |
|
|
|
Pending
satisfactory performance of the performance obligations and their acceptance by the State of Texas, the officers have potential liability
regarding the above matter, and the officers are held personally harmless by indemnification provisions of the Company. Therefore,
to the extent they might actually occur, these liabilities are the obligations of the Company. Management estimates that the liabilities
associated with this matter will not exceed $780,000, calculated as $30,000 for each of the 26 Infinity-Texas operated wells. This
related liability, less the payment made to the State of Texas in 2012 in the amount of $45,103, is included in the asset retirement
obligation on the accompanying balance sheets. |
|
|
● |
Cambrian
Consultants America, Inc. (“Cambrian”) filed an action in the District Court of Harris County, Texas, number CV2014-55719,
on September 26, 2014 against the Company resulting from certain professional consulting services provided for quality control and
management of seismic operations during November and December 2013 on the Nicaraguan Concessions. Cambrian provided these services
pursuant to a Master Consulting Agreement with the Company, dated November 20, 2013, and has claimed breach of contract for failure
to pay amounts due. On December 8, 2014, a default judgment was entered against the Company in the amount of $96,877 plus interest
and attorney fees. The Company has included the impact of this litigation as a liability in its accounts payable. The Company will
seek to settle the default judgment when it has the financial resources to do so. |
● |
Torrey
Hills Capital, Inc. (“Torrey”) notified the Company by letter, dated August 15, 2014, of its demand for the payment of
$56,000, which it alleged was unpaid and owed under a consulting agreement dated October 18, 2013. The parties entered into a consulting
agreement under which Torrey agreed to provide investor relations services in exchange for payment of $7,000 per month and the issuance
of 15,000 shares of Common Stock. The agreement was for an initial three month-term with automatic renewals unless terminated upon
30 days’ written notice by either party. The Company made payments totaling $14,000 and issued 15,000 shares of Common Stock
during 2013. The Company contends that Torrey breached the agreement by not performing the required services and that it had provided
proper notice of termination to Torrey. Furthermore, the Company contends that the parties agreed to settle the dispute on or about
June 19, 2014 under which it would issue 2,800 shares of Common Stock in full settlement of any balance then owed and final termination
of the agreement. Torrey disputed the Company’s contentions and submitted the dispute to binding arbitration. The Company was
unable to defend itself and the arbitration panel awarded Torrey a total of $79,594 in damages. The Company has accrued this amount
in accounts payable as of December 31, 2021 and 2020, which management believes is sufficient to provide for the ultimate resolution
of this dispute. |
|
|
● |
Joseph
Ryan (“Ryan”) filed an action in the District Court of Johnson County, Kansas, number 20CV01493, on March 20, 2020 against
the Company resulting from certain professional consulting services Ryan alleges he performed for Social, Environmental and Economic
Impact Assessments during July 2012 through September 2015 on the Nicaraguan Concessions. Ryan alleges that such services were provided
pursuant to oral agreements with AMGAS. Ryan claims breach of contract for failure to pay $12,000 amounts invoiced and due. On December
23, 2020, Ryan filed a Motion for Default Judgment for $12,000 in unpaid invoices plus legal, fees, statutory interest and any expert
testimony fees. |
|
|
|
On February 10, 2021, the parties agreed to a full and complete settlement of the matter with prejudice. The terms of the settlement required the Company to pay a total of $10,000 to extinguish accounts payable to Ryan totaling $33,000. As a result, the Company recorded a $23,000 gain from settlement of litigation during the year ended December 31, 2021 (See note 10).
USNG
Letter Agreement
On
November 9, 2021, the Company entered into a letter agreement (the “USNG Letter Agreement”) with U.S. Noble Gas, LLC (“USNG”),
pursuant to which USNG will provide consulting services to the Company for exploration, testing, refining, production, marketing and
distribution of various potential reserves of noble gases and rare earth element/minerals on the Company’s recently acquired 11,000-acre
oil & gas properties in the Otis Albert Field located on the Central Kansas Properties. The USNG Letter Agreement would cover all
of the noble gas, specifically including helium, and rare earth elements/minerals potentially existing on the Central Kansas Properties
and the Company’s future acquisitions, if any.
The
USNG Letter Agreement also provides that USNG will supply a large vessel designed for flows up to 5,000 barrels of water per day at low
pressures, known as a gas extraction/separator unit. The gas extraction/separator unit is a dewatering vessel that the Company may use
for multiple wells in the future.
The
USNG Letter Agreement requires the Company to establish a four-member board of advisors (the “Board of Advisors”) comprised
of various experts involved in noble gas and rare earth elements/minerals. The Board of Advisors will help attract both industry partners
and financial partners for developing a large helium, noble gas and/or rare earth element/mineral resources that may exist in the region
where the Company currently operates. The industry partners would include helium, noble gas and/or rare earth element/mineral purchasers
and exploration and development companies from the energy industry. The financial partners may include large family offices or small
institutions.
The
Company will pay USNG a monthly cash fee equal to $8,000 per month beginning at the onset of commercial helium or minerals production
and sales, subject to certain thresholds. Such monthly fees will become due and payable for any month that AMGAS receives cash receipts
in excess of $25,000 derived from the sale of noble gases and/or rare earth elements/minerals. The Company has not yet achieved the $25,000
cash receipts threshold, therefore there has been no payment or accrual liability relative to this cash fee provision as of December
31, 2021.
|
Note
13 – Related Party Transactions
The
Company’s Chief Operating Officer is a non-controlling member of Core. The Company acquired an Option from Core to purchase the
production and mineral rights/leasehold for the Properties. The Company paid a non-refundable deposit of $50,000 in 2019 to bind the
original Option, which gave it the right to acquire the Properties for $2.5 million prior to December 31, 2019. The Company was not able
to exercise the Option prior to December 31, 2019. On September 2, 2020, the Company acquired a new Option from Core under similar terms
as the previous Option, however the newly acquired Option permitted the Company to purchase the Properties at a reduced price of $900,000
at any time prior to November 1, 2020 and the Company agreed to immediately conduct a capital raise of between approximately $2-10 million
to fund its acquisition and development of the Properties. On December 14, 2020 the parties executed an asset purchase and sale agreement
which extended the new Option to January 11, 2021, which expired. The parties entered into the Second Side Letter agreement on March
31, 2021, pursuant to which we and Core agreed to set the closing date on which the Properties would be purchased to April 1, 2021. Pursuant
to the Second Side Letter, the Company is responsible for reimbursing Core for certain prorated revenues and expenses from January 1,
2021 through the April 1, 2021 closing date. On April 1, 2021 we completed the acquisition of the Properties, under the same terms of
the asset purchase agreement executed on December 14, 2020 which provided a purchase price of $900,000. The Company raised approximately
$2.05 million on March 26, 2021 through the issuance of convertible preferred stock with detachable common stock purchase warrants. The
funds raised pursuant to the Series A Convertible Preferred Stock issuance were used to complete the acquisition of the Properties on
April 1, 2021, to retire the outstanding convertible note payable and for working capital purposes.
The
Company does not have any employees other than its Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. In previous
years, certain general and administrative services (for which payment is deferred) had been provided by the Company’s Chief Financial
Officer’s accounting firm at its standard billing rates plus out-of-pocket expenses consisting primarily of accounting, tax and
other administrative fees. The Company no longer utilizes its Chief Financial Officer’s accounting firm for such support services
and was not billed for any such services during the years ended December 31, 2021 and 2020. On March 31, 2021 the parties entered into
a Debt Settlement Agreement whereby all amounts due to such firm for services totaling $762,407 were extinguished upon the issuance of
$7,624 principal balance of 3% Note and the issuance of warrants to purchase 1,524,814 shares of Common Stock as further described in
Notes 3, 7 & 9. Total amounts due to the related party was $-0- and $762,407 as of December 31, 2021 and 2020, respectively.
The
Company had accrued compensation to its officers and directors in years prior to 2018. The Board of Directors authorized the Company
to cease the accrual of compensation for its officers and directors, effective January 1, 2018. On March 31, 2021 the parties entered
into Debt Settlement Agreements whereby all accrued amounts due for such services totaling $1,789,208 were extinguished upon the issuance
of $17,892 principal balance of 3% Convertible Promissory Note and the issuance of warrants to purchase 3,578,416 shares of Common Stock
as further described in Notes 3, 7 & 9. Total amounts due to the officers and directors related to accrued compensation was $-0-
and $1,789,208 as of December 31, 2021 and 2020, respectively.
Offshore
Finance, LLC was owed financing costs in connection with a subordinated loan to the Company which was converted to common shares in 2014.
The managing partner of Offshore and the Company’s CFO are partners in the accounting firm which the Company used for general corporate
purposes in the past. On March 31, 2021, the parties entered into a Debt Settlement Agreement whereby all amounts due for such services
totaling $26,113 were extinguished upon the issuance of $261 principal balance of 3% Convertible Promissory Note and the issuance of
warrants to purchase 52,226 shares of common stock as further described in Notes 3, 7 & 9. Total amounts due to this related party
was $-0- and $26,113 as of December 31, 2021 and 2020, respectively.
On
May 13, 2020, the Company borrowed $41,000 from its Chairman, CEO & President in the form of an unsecured promissory note bearing
6% interest and due on demand. The proceeds were used for general working capital purposes. The entire $41,000 principal balance and
$654 of accrued interest related to the note was retired on August 19, 2020 and there is no remaining balance as of December 31, 2021
and 2020.
Note
14 –Net Income (Loss) Per Share
The
calculation of the weighted average number of shares outstanding and income (loss) per share outstanding for the years ended December
31, 2021 and 2020 are as follows:
Schedule of Net Earnings Per Share
| |
2021 | | |
2020 | |
| |
Year Ended December 31, | |
| |
2021 | | |
2020 | |
Net (loss) income | |
$ | (1,603,761 | ) | |
$ | 5,623,707 | |
| |
| | | |
| | |
Convertible preferred stock dividends | |
| (174,449 | ) | |
| — | |
| |
| | | |
| | |
Numerator for basic (loss) income per share - Net (loss) income attributable
to common stockholders | |
| (1,778,210 | ) | |
| 5,623,707 | |
| |
| | | |
| | |
Add: Interest expense on convertible debt | |
| — | | |
| 144,288 | |
| |
| | | |
| | |
Adjusted numerator for diluted (loss) income per share – Net
(loss) income attributable to common stockholders | |
$ | (1,778,210 | ) | |
$ | 5,767,995 | |
| |
| | | |
| | |
Denominator for basic (loss) income per share – weighted average shares outstanding | |
| 18,741,187 | | |
| 14,508,755 | |
| |
| | | |
| | |
Dilutive effect of convertible debt outstanding | |
| — | | |
| 1,447,868 | |
| |
| | | |
| | |
Dilutive effect of shares issuable under stock options and warrants outstanding | |
| — | | |
| — | |
| |
| | | |
| | |
Denominator for diluted (loss) income per share – adjusted weighted
average shares outstanding | |
| 18,741,187 | | |
| 15,956,623 | |
| |
| | | |
| | |
Net (loss) income per share: | |
| | | |
| | |
Basic | |
$ | (0.09 | ) | |
$ | 0.39 | |
Diluted | |
$ | (0.09 | ) | |
$ | 0.36 | |
Basic
income (loss) per share is based upon the weighted average number of shares of Common Stock outstanding during the year. For the year
ended December 31, 2021, all shares issuable upon conversion of convertible debt, convertible preferred stock and the exercise of outstanding
stock options and warrants were antidilutive, and, therefore, not included in the computation of diluted income (loss) per share.
For
the year ended December 31, 2020, the shares issuable upon conversion of the convertible debt issued on August 19, 2020 were considered
common stock equivalents and therefore their dilutive effect was included in the computation of diluted income (loss) per share. All
shares issuable upon conversion of convertible debt (other than the convertible debt issued on August 19, 2020) and the exercise of outstanding
stock options and warrants were antidilutive, and, therefore, not included in the computation of diluted earnings per share.
Note
15 – Supplemental Oil and Gas Information (Unaudited)
Estimated
Proved Oil and Gas Reserves (Unaudited)
As
of December 31, 2020, the Company had no proved reserves. As such, there are no estimates of proved reserves to disclose, nor standardized
measure of discounted future net cash flows relating to proved reserves as of and for the year ended December 31, 2020.
On
April 1, 2021, the Company completed the previously announced acquisition of certain oil and gas properties and interests from Core Energy,
LLC, effective as of January 1, 2021 (the “Oil & Gas Properties Acquisition”). The Oil & Gas Properties Acquisition
included the purchase of certain oil and gas properties in the Central Kansas Uplift geological formation, covering over 11,000 contiguous
acres, including, among other things, the production and mineral rights to and a leasehold interest in the Oil & Gas Properties and
all contracts, agreements and instruments. The Company acquired the Oil & Gas Properties for an aggregate purchase price consisting
of $900,000 in cash at closing. Following is the unaudited estimates of proved reserves and standardized measure of discounted future
net cash flows relating to proved reserves contained on the acquired Oil & Gas Properties:
The
following tables summarize the net ownership interest in the proved oil
and gas reserves and the standardized measure of discounted future net cash flows related to the proved oil and gas reserves for the Oil
& Gas Properties and the estimates were prepared by the Company based on the reserve reports prepared for the Company for the year
ended December 31, 2021. The standardized measure presented here excludes income taxes as the tax basis for the Oil & Gas Properties
is not applicable due to the substantial net operating loss carryforwards available to the Company on a go-forward basis. The proved oil
and gas reserve estimates and other components of the standardized measure were determined in accordance with the authoritative guidance
of the Financial Accounting Standards Board and the SEC.
Proved
Oil and Gas Reserve Quantities
Proved
reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable
certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating
methods, and government regulations. Proved developed reserves are proved reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the
cost of a new well. Proved undeveloped reserves are proved reserves that are expected to be recovered from new wells on undrilled acreage,
or from existing wells where a relatively major expenditure is required for recompletion. The net proved oil and gas reserves and changes
in net proved oil and gas reserves attributable to the Oil & Gas Properties, all of which are located in the state of Kansas, are
summarized below:
Schedule
of Proved
Oil and Gas Reserve Quantities
| |
Crude Oil Barrels | |
Proved developed reserves: | |
| | |
At January 1, 2021 | |
| — | |
Proved developed reserves, beginning of year | |
| — | |
In-place proved developed reserves acquired | |
| 26,185 | |
Extensions and discoveries | |
| — | |
Revisions of previous estimates | |
| — | |
Production | |
| (3,123 | ) |
| |
| | |
Proved developed reserves at end of year – December 31, 2021 | |
| 23,062 | |
Proved developed reserves at end of year | |
| 23,062 | |
| |
| | |
Proved undeveloped reserves: | |
| | |
| |
| | |
At January 1, 2021 | |
| — | |
Proved undeveloped reserves, beginning of year | |
| — | |
In-place proved undeveloped reserves acquired | |
| 403,210 | |
Extensions and discoveries | |
| — | |
Revisions of previous estimates | |
| — | |
Production | |
| — | |
| |
| | |
Proved undeveloped reserves at end of year – December 31, 2021 | |
| 403,210 | |
Proved undeveloped reserves at end of year | |
| 403,210 | |
| |
| | |
Proved developed and undeveloped reserves: | |
| | |
At January 1, 2021 | |
| — | |
Proved developed and undeveloped reserves, beginning of year | |
| — | |
In-place proved developed and undeveloped reserves acquired | |
| 429,395 | |
Extensions and discoveries | |
| — | |
Revisions of previous estimates | |
| — | |
Production | |
| (3,123 | ) |
| |
| | |
End of year – December 31, 2021 | |
| 426,272 | |
Proved developed and undeveloped reserves, end of year | |
| 426,272 | |
Standardized
Measure
The
standardized measure of discounted future net cash flows before income taxes related to the proved oil and gas reserves of the Oil &
Gas Properties is as follows:
Schedule of Standardized Measure of Discounted Future Net Cash Flows
| |
December 31, 2021 | |
| |
| |
Future cash inflows | |
$ | 21,955,464 | |
Future production costs | |
| (2,698,409 | ) |
Future development costs | |
| (4,450,000 | ) |
| |
| | |
Future net cash flows | |
| 14,807,055 | |
Less 10% annual discount to reflect timing of cash flows | |
| (11,166,405 | ) |
| |
| | |
Standard measure of discounted future net cash flows | |
$ | 3,640,650 | |
Requirements
for oil and gas reserve estimation and disclosure require that reserve estimates and future cash flows be based on the average market
prices for sales of oil and gas on the first calendar day of each month during the year. The average prices used for the year ended December
31, 2021 under these rules were $66.34 for crude oil.
Future
operating expenses and development costs are computed primarily by the Company’s petroleum engineers by estimating the expenditures
to be incurred in developing and producing the proved oil and gas reserves at the end of the year, based on year end costs and assuming
continuation of existing economic conditions. As mentioned above, the standardized measure presented here does not include the effects
of income taxes as the tax basis for the oil & gas properties due to the substantial tax net operating loss carryforwards available
to the Company which makes its use non-applicable on a go-forward basis. A discount factor of 10% was used to reflect the timing of future
net cash flows. The standardized measure of discounted future net cash flows is not intended to represent the replacement cost or fair
value of the Company’s oil & gas properties. An estimate of fair value would also take into account, among other things, the
recovery of reserves not presently classified as proved, anticipated future changes in prices and costs, and a discount factor more representative
of the time value of money and the risks inherent in oil and gas reserve estimates.
Costs
Incurred in Oil and Gas Activities
Costs
incurred during the year ended December 31, 2021 in connection with the Company’s oil and gas acquisition, exploration and development
activities are shown below.
Schedule of Oil and Gas Acquisition, Exploration and Development Activities
| |
Year ended December 31, 2021 | |
Property acquisition costs: | |
| | |
Proved | |
$ | — | |
Unproved | |
| — | |
Total property acquisition costs | |
| — | |
Development costs | |
| — | |
Exploration costs | |
| 272,799 | |
Total costs | |
$ | 272,799 | |
The
Company incurred $272,799 in exploration costs on the Kansas Oil & Gas Properties primarily to assess the potential of noble gas
and rare earth mineral reserves. Such exploration included noble gases such as helium and argon and rare earth minerals included bromine,
lithium and iodine. The Company is assessing the results of such tests to determine whether commercial amounts of reserves exist that
can be profitably extracted on the Kansas Oil & Gas Properties.
Aggregate
capitalized costs relating to the Company’s oil and gas producing activities, and related accumulated depreciation, depletion,
impairment and amortization are as follows:
Schedule of Aggregate Capitalized Cost and Related Accumulated Depreciation
| |
2021 | | |
2020 | |
| |
December 31, | |
| |
2021 | | |
2020 | |
| |
| | | |
| | |
Proved oil and gas properties | |
$ | — | | |
$ | — | |
Unproved oil and gas properties | |
| — | | |
| — | |
Total | |
| — | | |
| — | |
Less accumulated impairment charge on oil and gas properties as of December 31, 2015 | |
| — | | |
| — | |
Less accumulated depreciation, depletion and amortization | |
| — | | |
| — | |
| |
| | | |
| | |
Net capitalized costs | |
$ | — | | |
$ | — | |
The
$900,000 acquisition price of the Kansas Oil & Gas Properties was allocated to tangible equipment and seismic data acquired as part
of the acquisition. None of the acquisition costs was allocated to proved or unproved oil and gas reserves present on the Kansas Oil
& Gas Properties
Costs
Not Being Amortized
Oil
and gas property costs not being amortized at December 31, 2021 and 2020, costs by year that the costs were incurred, are as follows:
Schedule of Oil and Gas Property Costs Not Being Amortized
Year Ended December 31, | |
| | |
2021 | |
$ | — | |
2020 | |
| — | |
Prior | |
| — | |
Total costs not being amortized | |
$ | — | |
Note
16 – Subsequent Events
Farmout
Agreement to Explore and Develop Unconventional Gas and Brine Materials in the Hugoton Gas Field
On
April 4, 2022, the Company
acquired a 40%
joint venture interest in the AMGAS JV that holds a Farmout Agreement with Scout with regards to its oil and gas interests in the Hugoton
Gas Field, located in Haskell and Finney Counties, Kansas.
The
Farmout Agreement covers drilling and completion of up to 50 wells, with the first exploratory well scheduled to be spudded in April
2022. The AMGAS JV will utilize Scout’s existing infrastructure assets including water disposal, gas gathering and helium
processing. The Farmout Agreement provides the AMGAS JV with rights to take in-kind and market its share of helium at the tailgate of
Jayhawk Gas Plant, which will enable the AMGAS JV to market and sell the helium produced at prevailing market prices.
The
AMGAS JV also acquired the right to all brine minerals subject to a ten percent (10%) royalty to Scout, across Finney and Haskell Counties.
Brine minerals are harvested from the formation water produced from active, and to be drilled, oil and gas wells and may include a variety
of dissolved minerals including bromine and iodine. The AMGAS JV plans to target brine minerals with commercial quantities of bromine
and iodine. AMGAS is currently developing proprietary technology to recover brine minerals, particularly with respect to bromine, which
is well underway and has demonstrated recovery efficiency and is expected to be available for use in existing and future development
wells.
The
first exploratory well is scheduled to commence in April 2022 near Garden City, Kansas with a goal to evaluate the first of two
separate silty shale members of the Chase group of formations – the Gage Shale and the Holmesville Shale. These two shale members
have not previously been targeted for exploration by historical operations in the field.
The
exploration and development activity will be directed and coordinated under the terms of the USNG Letter Agreement entered in November
2021 with input from the newly formed Advisory Board of directors whose members all have extensive experience in developing shale resources
and noble gas and rare earth mineral reserves.
Conversion
of Series A Convertible Preferred Stock to Common Stock.
On
January 4, 2022, a holder of Series A Convertible Preferred Stock exercised its right to convert 500
shares of Series A Convertible Preferred Stock
into 156,250
shares of common stock. In addition, on February
11, 2022, a holder of Series A Convertible Preferred Stock exercised its right to convert 300
shares of Series A Convertible Preferred Stock
into 93,750
shares of common stock.
Letter of Engagement
On April 1, 2022, the Company engaged Univest
Securities, LLC (“Univest”) to act as the exclusive financial advisor, and the lead underwriter in a public offering
(the “Offering”), to the Company. The size of the Offering is expected to be between $10,000,000
to $15,000,000,
priced at a per share in order to up-list the Company onto the Nasdaq market (the “Public Offering Price”) upon closing
of the Offering. The price will be determined by mutual agreement of the Company and Univest and will be determined at the signing
of the final Underwriting Agreement, which will based on, among other things, market conditions at the time of the Offering.
Pursuant to the Underwriting Agreement,
Univest will act as principal, or the representative of a number of broker-dealers that will offer the securities in a public
offering. The
Letter of Engagement anticipates that Univest will receive a gross discount equal to eight percent (8%) of the public offering price on each
of the securities being offered. Univest has agreed to negotiate in good faith with other underwriters who, acting severally, could
contract to act as an Underwriter in connection with the sale of the securities being offered. Univest will also have the right to
re-offer all or any part of the securities being offered to broker- dealers. Univest will be entitled to warrants to purchase common
stock representing 5% of the amount of securities sold in the Offering with an exercise price determined to be 110% of the Offering
Price.
The Company also agreed to reimburse Univest,
at and out of the proceeds of the Offering closings, for all of its reasonable, out-of-pocket expenses (including, but not limited to,
travel, due diligence expenses, reasonable fees and expenses of its legal counsel, roadshow and background check on the Company’s
principals) in connection with the performance of its services hereunder not to exceed an aggregate of $150,000. In addition, at the
closing of the Offering, the Company agreed to reimburse Univest one percent (1%) of the actual amount of the Offering as nonaccountable
expense of the offering.
The term of the Letter of Engagement Agreement expires upon the earlier
to occur of (i) six (6) months from the date of execution or (ii) the mutual written agreement of the Company and Univest.
**********************