SCHEDULE
OF MATURITIES LEASE LIABILITY
| |
| | |
2021 | |
$ | 15,050 | |
Total | |
$ | 15,050 | |
Less:
Imputed interest | |
| (1,332 | ) |
Present
value of lease liabilities | |
$ | 13,718 | |
NOTE
6. NOTES PAYABLE
The
following table summarizes the Company’s notes payable:
SCHEDULE OF NOTES PAYABLE
| |
Interest
rate | | |
Date
of maturity | | |
March
31, 2021 | | |
December
31, 2020 | |
Truck
loan (i) | |
| 5 | % | |
| January
20, 2022 | | |
$ | 7,990 | | |
$ | 9,916 | |
Credit
note I (ii) | |
| 12 | % | |
| May
11, 2021 | | |
| — | | |
| 800,000 | |
Credit
note II (iii) | |
| 12 | % | |
| October
17, 2019 | | |
| — | | |
| 346,038 | |
Credit
note III (iv) | |
| 15 | % | |
| April
25, 2021 | | |
| — | | |
| 750,000 | |
Discount
on credit note III | |
| — | | |
| — | | |
| — | | |
| (5,976 | ) |
Credit
note IV(v) | |
| 10 | % | |
| June
30, 2021 | | |
| 933,095 | | |
| 937,109 | |
Discount
on credit note IV | |
| — | | |
| — | | |
| (238,577 | ) | |
| (285,768 | ) |
Credit
note V(vi) | |
| 10 | % | |
| December
31, 2021 | | |
| 918,049 | | |
| — | |
Discount
on credit note V | |
| — | | |
| — | | |
| (1,195 | ) | |
| — | |
Credit
note VI (vii) | |
| 10 | % | |
| December
31, 2021 | | |
| 1,133,104 | | |
| — | |
Lee
Lytton | |
| — | | |
| On
demand | | |
| 3,500 | | |
| 3,500 | |
Joel
Oppenheim (viii) | |
| 10 | % | |
| On
demand | | |
| — | | |
| 161,900 | |
Joel
Oppenheim (viii) | |
| 10 | % | |
| On
demand | | |
| — | | |
| 15,000 | |
Joel
Oppenheim(viii) | |
| 10 | % | |
| October
17, 2018 | | |
| — | | |
| 240,000 | |
Credit
Note VII (viii) | |
| 10 | % | |
| December
31, 2021 | | |
| 416,900 | | |
| — | |
Origin
Bank (PPP loan) (ix) | |
| — | | |
| — | | |
| 56,680 | | |
| 56,680 | |
M.
Horowitz | |
| 10 | % | |
| October
14, 2016 | | |
| 10,000 | | |
| 10,000 | |
| |
| | | |
| | | |
$ | 3,239,546 | | |
$ | 3,038,309 | |
Current
portion: | |
| | | |
| | | |
| | | |
| | |
Truck
loan | |
| | | |
| | | |
$ | 7,990 | | |
$ | 9,343 | |
Credit
note I | |
| | | |
| | | |
| — | | |
| 800,000 | |
Credit
note II | |
| | | |
| | | |
| — | | |
| 346,038 | |
Credit
note III | |
| | | |
| | | |
| — | | |
| 744,023 | |
Credit
note IV | |
| | | |
| | | |
| 694,518 | | |
| 651,251 | |
Credit
note V | |
| | | |
| | | |
| 916,854 | | |
| — | |
Credit
note VII | |
| | | |
| | | |
| 1,133,104 | | |
| — | |
Lee
Lytton | |
| | | |
| | | |
| 3,500 | | |
| 3,500 | |
Joel
Oppenheim | |
| | | |
| | | |
| — | | |
| 161,900 | |
Joel
Oppenheim | |
| | | |
| | | |
| — | | |
| 15,000 | |
Joel
Oppenheim | |
| | | |
| | | |
| — | | |
| 240,000 | |
Credit
note VII | |
| | | |
| | | |
| 416,900 | | |
| — | |
Origin
Bank (PPP loan) | |
| | | |
| | | |
| 56,680 | | |
| 56,680 | |
M.
Horowitz | |
| | | |
| | | |
| 10,000 | | |
| 10,000 | |
Current
portion of notes payable | |
| | | |
| | | |
$ | 3,239,546 | | |
$ | 3,037,737 | |
|
(i) |
On
January 6, 2017, the Company purchased a truck and entered into an installment note in the amount of $35,677 for a term of five years
and interest at 5.49% per annum. Payments of principal and interest in the amount of $683 are due monthly. |
|
(ii) |
On
May 9, 2018, Bow entered into an Amended and Restated Loan Agreement with a third party. The Loan Agreement increased by $800,000
the amount of a previous loan agreement entered into between Bow and the Lender, to $1,530,000. The amount owed under the Loan Agreement
accrues interest at the rate of 12% per annum (19% upon the occurrence of an event of default) and is due and payable on May 11,
2021, provided that the amount owed can be prepaid prior to maturity, beginning 60 days after the date of the Loan Agreement, provided
that the Company gives the Lender 10 days’ notice of our intent to repay and pays the Lender the interest which would have
been due through the maturity date at the time of repayment. The Loan Agreement contains standard and customary events of default,
including cross defaults under other indebtedness obligations of us and Bow, and the occurrence of any event which would have a material
adverse effect on us or Bow. The Company is required to make principal payments of $10,000 per month from January through September
2019 with the remaining balance of $710,000 due at maturity on May 11, 2021. The additional $800,000 borrowed in connection with
the entry into the Loan Agreement was used by the Company to acquire a 25% working interest in approximately 41,526 acres located
in the Luseland, Hearts Hill, and Cuthbert fields, located in Southwest Saskatchewan and Eastern Alberta, Canada (collectively, the
“Canadian Properties” and the “Working Interest”). Upon the disposition of Bow, a total of $730,000 of the
obligations owed under the Loan Agreement were transferred to Blue Sky Resources Ltd. (“Blue Sky”). |
|
|
|
|
|
In
order to induce the Lender to enter into the Loan Agreement, the Company agreed to issue the Lender 500,000 shares of restricted
common stock (the “Loan Shares”), which were issued on May 18, 2018, and warrants to purchase 2,320,000 shares of common
stock (the “Loan Warrants”), of which warrants to purchase (a) 320,000 shares of common stock have an exercise price
of $0.10 per share in Canadian dollars and expire in May 15, 2021, (b) 500,000 shares of common stock have an exercise price of $0.12
per share in U.S. dollars, and expire on May 15, 2021; and (c) 1,500,000 shares of common stock have an exercise price of $0.10 per
share in U.S. dollars and expire on May 15, 2020. The fair value of the 500,000 common shares issued were assessed at the market
price of the stock on the date of issuance and valued at $47,500. The fair value of the Canadian dollar denominated warrants issued
were assessed at $30,012 using the Black Scholes Option Pricing Model. The fair value of the U.S. dollar denominated warrants issued
were assessed at $182,650 using the Black Scholes Option Pricing Model. The Company determined the debt modification to be an extinguishment
of debt and recorded a total loss on extinguishment of debt of $260,162. |
|
|
|
|
|
On
January 1, 2021, the Lender signed an amended loan agreement, which moved the balance of this note to credit note VI. More details
can be found in footnote (vii). |
|
|
|
|
(iii) |
On
September 17, 2018, the Company entered into a loan agreement with a third party for $200,000
to acquire an additional
3%
working interest in the Canadian Properties. The loan bears interest at 12%
per annum and has a maturity date of October 17, 2019. Payments of principal and interest in the amount of $6,000
are due monthly. The loan
is secured against the Company’s 3%
working interest in the Canadian Properties and has no financial covenants. During 2020, the LOC balance increased by $146,000
resulting in a $346,038
ending balance. On January
1, 2021, the Lender signed an amended loan agreement, which moved the balance of this note to credit note VI. More details can be
found in footnote (vi) and (vii). |
|
|
|
|
(iv) |
On
April 25, 2019, the Company entered into a promissory note (an “Acquisition Note”) with a third-party in the amount of
$750,000
to acquire working interests in the Utikuma oil
field in Alberta Canada. The Note bears interest at 9%
per annum and is due in full at maturity on April
25, 2021. No payments are required on the
note until maturity while interest is accrued. In addition, warrants to purchase 500,000
shares of common stock with an exercise price
of $0.12
per share expiring on May 1, 2021, were issued
associated with the note. The fair value of issued warrants were recorded as a debt discount of $38,249
and amortization of $8,366.
The notes hold a security guarantee of working interest in the Utikuma oil field and a working
interest in the TLSAU field. On January 1, 2021, the Lender signed an amended loan agreement, which moved the balance of this note
to credit note V. More details can be found in footnote (vi). |
|
|
|
|
(v) |
On
January 2, 2020, the Company entered into a loan agreement in the amount of $1,000,000 with a third party (including a $120,000 origination
fee). The note bore interest at an interest rate of $10% per annum and matures on June 30, 2020, with warrants to purchase 5,000,000
shares of common stock (the “Loan Warrants”), at an exercise price of $0.10 per share in Canadian dollars and expire
on January 2, 2023. The fair value of issued warrants were recorded as a debt discount of $266,674 and monthly amortization of $11,111.
These funds were initially placed in escrow, then on May 29, 2020, they were used for the purchase of the Utikuma oil field. Pursuant
to a loan extension agreement, on October 30, 2020, the Company issued warrants to purchase 5,000,000 of common stock, at an exercise
price of $0.05 per share, expiring on January 6, 2023. The fair value of the issued warrants was recorded as a debt discount of $166,289
and monthly amortization of $4,614.14. |
|
|
|
|
(vi) |
On
January 1, 2021, the Company signed an amended loan agreement with a third party for $918,049,
which combined credit note III along with $146,038
of credit note II and
accrued interest on those amounts. The loan bears interest at 10%
per annum and has a maturity date of December 31, 2021. The warrants associated with credit note III are applied as a discount to
the amended loan. The note holds a security guarantee of a working interest in the Utikuma oil field and a working interest in the
TLSAU field. This modification created a gain of $77,576, which was recorded in additional paid in capital, due to the related
party nature of the transaction. |
|
|
|
|
(vii) |
On
January 1, 2021, the Company signed an amended loan agreement with a third party for $1,133,104,
which combined credit note I along with $200,000
of credit note II and
accrued interest on those amounts. The loan bears interest at 10%
per annum and has a maturity date of December 31, 2021. The note holds a security interest against the 25%
Working Interest in the Cona assets. This modification created a gain of $104,235, which was recorded in additional paid in capital,
due to the related party nature of the transaction. |
|
|
|
|
(viii) |
Various
Shareholder Advances provided by Mr. Oppenheim during 2018 and 2019. There were no formal documents drawn. Interest rates were applied
based on other similar loan agreements entered into by the Company during that period. On February 12, 2021, the Company entered
into an amended loan agreement in the amount of $416,900 that consolidated these amounts. The loan bears interest at 10% per annum
and has a maturity date of December 31, 2021. |
|
|
|
|
(ix) |
On
April 23, 2020, the Company was granted a $56,680
business loan through the
Paycheck Protection Program (PPP) administered through the CARES act. The loan amount was based 2.5 times the Company’s average
monthly payroll costs. The company applied for loan forgiveness, and it was granted on July 26, 2021.. |
The
following is a schedule of future minimum repayments of notes payable as of March 2021:
SCHEDULE OF FUTURE MINIMUM REPAYMENTS OF NOTES PAYABLE
| |
| | |
2021 | |
$ | 3,479,318 | |
Thereafter | |
| — | |
Total | |
$ | 3,479,618 | |
NOTE
7. RELATED PARTY NOTES PAYABLE
The
following table summarizes the Company’s related party notes payable:
SCHEDULE OF RELATED PARTY NOTES PAYABLE
| |
| | |
| |
Balance
at: | |
| |
Interest
rate | | |
Date
of maturity | |
March 31, 2021 | | |
December
31, 2020 | |
Quinten
Beasley | |
| 10 | % | |
October 14, 2016 | |
$ | 5,000 | | |
$ | 5,000 | |
Jovian
Petroleum Corporation (i) | |
| 4 | % | |
December 31, 2021 | |
| 178,064 | | |
| 188,285 | |
Ivar
Siem (ii) | |
| 12 | % | |
On
demand | |
| — | | |
| 200,000 | |
Ivar
Siem (ii) | |
| Non-interest | | |
On
demand | |
| — | | |
| 50,000 | |
Ivar
Siem (ii) | |
| 9 | % | |
December 31, 2021 | |
| 278,435 | | |
| — | |
Mark
M Allen (iii) | |
| 9 | % | |
September 2, 2021 | |
| 55,000 | | |
| 55,000 | |
Mark
M Allen (iv) | |
| 10 | % | |
June 30, 2021 | |
| | | |
| 135,000 | |
Mark
M Allen (v) | |
| 12 | % | |
June 30, 2021 | |
| 200,000 | | |
| 200,000 | |
Mark
M Allen (vi) | |
| 10 | % | |
June 30, 2020 | |
| — | | |
| 100,000 | |
Discount
on Mark M Allen ($100K) | |
| | | |
| |
| — | | |
| (11,536 | ) |
Mark
M Allen (vi) | |
| 10 | % | |
June 30, 2020 | |
| — | | |
| 125,000 | |
Discount
on Mark M Allen ($125K) | |
| | | |
| |
| — | | |
| (11,420 | ) |
Mark
Allen (vi) | |
| 9 | % | |
June 30, 2021 | |
| 245,938 | | |
| — | |
Discount
on Mark M Allen ($245K) | |
| | | |
| |
| (11,922 | ) | |
| — | |
| |
| | | |
| |
$ | 950,516 | | |
$ | 1,035,329 | |
|
(i) |
On
February 9, 2018, the Company entered into a Revolving Line of Credit Agreement (“LOC”) for $200,000 (subsequently increased
to $500,000 on April 12, 2018) with Jovian Petroleum Corporation (“Jovian”). The CEO of Jovian is Quinten Beasley, our
former director (resigned October 31, 2018), and 25% of Jovian is owned by Zel C. Khan, our former CEO and director. The initial
agreement was for a period of 6 months, and it can be extended for up to 5 additional terms of 6 months each. All amounts advanced
pursuant to the LOC will bear interest from the date of advance until paid in full at 3.5% simple interest per annum. Interest will
be calculated on a basis of a 360-day year and charged for the actual number of days elapsed. Subsequent to period-end this LOC has
been extended until December 31, 2021. |
|
|
|
|
(ii) |
On
August 15, 2019, the Company entered into a loan agreement in the amount of $75,000 with Ivar Siem. The note bears interest at an
interest rate of 12% per annum with a four (4) month maturity. On December 4, 2019, the Company entered into a loan agreement in
the amount of $100,000 with Ivar Siem. The note bears interest at an interest rate of 12% per annum with a six (6) month maturity.
At the maturity date, the note holder has the right to collect the principal plus interest or convert into 1,250,000 shares of common
stock at $0.08 per share. In addition, if converted, the note holder will also receive 5,000,000 warrants at an exercise price of
$0.10 per share, vesting immediately with a 36-month expiration period. On February 28, 2020, the Company entered into a $50,000
loan agreement with a Ivar Siem. The note does not bear any interest (0% interest rate) is due on demand. The note includes warrants
to purchase 200,000 shares of common stock (the “Loan Warrants”), at an exercise price of $0.10 per share in Canadian
dollars and expire on March 1, 2022. The warrants vest and will be issued on January 1, 2021. On January 1, 2021, the Company entered
into an amended loan agreement in the amount of $278,435, which combined the three previous loans, along with accrued interest. The
note bears an interest rate of 9% and matures on December 21, 2021. |
|
(iii) |
On
April 15, 2020, the Company entered into a consulting agreement, with Mark M Allen, that included a funding clause where the Company
borrowed $55,000
from Mr. Allen. Mr. Allen
is responsible for the future oversight and management of the SUDS field located in Creek County, Oklahoma. The note bears
interest at an interest rate of 9%
per annum and matures on August 15, 2021. |
|
|
|
|
(iv) |
On
January 6, 2020, the Company entered into a consulting agreement, with Mark M Allen, that included a funding clause where the Company
borrowed $135,000
($62,000
on January 6, 2020, $45,000
on May 18, 2020, and $28,000
on June 26, 2020) from
a third party. The third party is responsible for the future oversight and management of the SUDS field located in Creek County,
Oklahoma. The note bore interest at an interest rate of 10%
per annum and mature on June
30, 2020. On March
30, 2021, this note was settled with shares of the company. More details can be found in Note 10. Equity. |
|
|
|
|
(v) |
During
2019, the Company entered into a loan agreement in the amount of $200,000
with Mark M Allen. The note
bears interest at an interest rate of 12%
per annum and matures on June 30, 2021. At the maturity date, the note holder has the right to collect the principal plus interest or
convert into 2,500,000
shares of common stock at
$0.08
per share. In addition, upon
conversion, the note holder will also receive 10,000,000
warrants at an exercise price
of $0.10
per share, vesting immediately
with a 36-month expiration period. |
|
|
|
|
(vi) |
On January 3, 2020, the
Company entered into a loan agreement in the amount of $100,000
with Mark M Allen. The note bore interest at an interest rate of $10%
per annum and matures on June
1, 2020, with warrants to purchase 400,000
shares of common stock (the “Loan Warrants”), at an exercise price of $0.10
per share in Canadian dollars and expire on January
3, 2023. The fair value of issued warrants were recorded as a debt discount of $31,946
and monthly amortization of $1,775.
On February 14, 2020, the Company entered into a loan agreement in the amount of $125,000
with Mark M Allen. The note bore interest at an interest rate of 10%
per annum and matures on June
1, 2020, with warrants to purchase 750,000
shares of common stock (the “Loan Warrants”), at an exercise price of $0.10
per share in Canadian dollars and expire on February
14, 2022. The fair value of issued warrants were recorded as a debt discount of $38,249
and monthly amortization of $1,903.
On January 1, 2021, the Company entered into an amended loan agreement in the amount of $245,938,
which combined the two previous loans, along with accrued interest. The note bears an interest rate of 9%
and matures on June
30, 2021. |
The
following is a schedule of future minimum repayments of related party notes payable as of March 31, 2021:
SCHEDULE OF FUTURE MINIMUM REPAYMENTS OF RELATED PARTY NOTES PAYABLE
| |
| | |
2021 | |
$ | 962,438 | |
Thereafter | |
| — | |
Total | |
$ | 962,438 | |
NOTE
8. DERIVATIVE FINANCIAL INSTRUMENTS
On
May 18, 2018, as an inducement to enter into an Amended and Restated Loan Agreement, the Company issued, among other instruments, warrants
to acquire 320,000 shares of common stock with an exercise price of $0.10 per share in Canadian dollars. The warrants are valued using
the Black Scholes Option Pricing Model and the derivative is fair valued at the end of each reporting period. The Company valued the
derivative liability at initial recognition as $30,012.
On
January 06, 2020, as an inducement to enter into a Loan Agreement, the Company issued, among other instruments, warrants to acquire 5,000,000
shares of common stock with an exercise price of $0.10 per share. The warrants are valued using the Black Scholes Option Pricing Model
and the derivative is fair valued at the end of each reporting period. The Company valued the derivative liability at initial recognition
as $144,259.
On
October 30, 2020, as an inducement to extend the principal payment deadline from the previously issued Loan Agreement, the Company issued
additional warrants to acquire 5,000,000 shares of common stock with an exercise price of $0.10 per share. The warrants are valued using
the Black Scholes Option Pricing Model and the derivative is fair valued at the end of each reporting period. The Company valued the
derivative liability at initial recognition as $95,352.
A
summary of the activity of the derivative liabilities is shown below:
SCHEDULE OF DERIVATIVE LIABILITIES
As
of December 31, 2020 | |
| 183,798 | |
Additions | |
| — | |
Fair
value adjustment | |
| 187,716 | |
As
of March 31, 2021 | |
$ | 371,514 | |
Derivative
liability classified warrants were valued using the Black Scholes Option Pricing Model with the range of assumptions outlined below.
Expected life was determined based on historical exercise data of the Company.
SCHEDULE OF DERIVATIVE LIABILITY OF FAIR VALUE ASSUMPTION
| |
March
31, 2021 | |
Risk-free
interest rate | |
| 0.01%
- 0.35 | % |
Expected
life | |
| 0.11
– 2.58 years | |
Expected
dividend rate | |
| 0 | % |
Expected
volatility | |
| 289%
- 398 | % |
NOTE 9. ASSET RETIREMENT OBLIGATIONS
The
Company has a number of oil and gas wells in production and will have Asset Retirement Obligations (“AROs”) once the wells
are permanently removed from service. The primary obligations involve the removal and disposal of surface equipment, plugging and abandoning
the wells and site restoration.
AROs
associated with the retirement of tangible long-lived assets are recognized as liabilities with an increase to the carrying amounts of
the related long-lived assets in the period incurred. The fair value of AROs is recognized as of the acquisition date of the working
interest. The cost of the tangible asset, including the asset retirement cost, is depleted over the life of the asset. AROs are recorded
at estimated fair value, measured by reference to the expected future cash outflows required to satisfy the retirement obligations discounted
at the Company’s credit-adjusted risk-free interest rate. Accretion expense is recognized over time as the discounted liabilities
are accreted to their expected settlement value. If estimated future costs of AROs change, an adjustment is recorded to both the ARO
and the long-lived asset. Revisions to estimated AROs can result from changes in retirement cost estimates, revisions to estimated discount
rates and changes in the estimated timing of abandonment.
The
Company’s ARO is measured using primarily Level 3 inputs. The significant unobservable inputs to this fair value measurement include
estimates of plugging costs, remediation costs, inflation rate and well life. The inputs are calculated based on historical data as well
as current estimated costs. For the Canadian properties, abandonment and reclamation liabilities are prescribed by the province in which
the Company operates in. For the purpose of determining the fair value of AROs incurred during the years presented, the Company used
the following assumptions:
SCHEDULE OF FAIR VALUE OF ASSET RETIREMENT OBLIGATIONS
| |
| March
31, 2021 | |
Inflation
rate | |
| 1.92
- 2.15 | % |
Estimated
asset life | |
| 12-22
years | |
The
following table shows the change in the Company’s ARO liability:
SCHEDULE OF ASSET RETIREMENT OBLIGATIONS
| |
Canadian
properties | | |
United
States properties | | |
Total | |
Asset
retirement obligations, December 31, 2019 | |
$ | 1,445,991 | | |
$ | 277,373 | | |
$ | 1,723,364 | |
Acquisition
of Canadian property - Utikuma | |
| 906,146 | | |
| — | | |
| 906,146 | |
Plugging
liability at Twin Lakes | |
| | | |
| 606,109 | | |
| 606,109 | |
Accretion
expense | |
| 259,016 | | |
| 28,742 | | |
| 287,758 | |
Foreign
currency translations | |
| 100,756 | | |
| — | | |
| 100,756 | |
Asset
retirement obligations, December 31, 2020 | |
| 2,711,909 | | |
| 912,224 | | |
| 3,624,133 | |
Accretion
expense | |
| 81,823 | | |
| 6,383 | | |
| 88,206 | |
Foreign
currency translation | |
| 34,489 | | |
| — | | |
| 34,489 | |
Asset
retirement obligations, March 31, 2021 | |
$ | 2,828,221 | | |
$ | 918,607 | | |
$ | 3,746,828 | |
NOTE
10. EQUITY
Preferred
stock
The
holders of Series A Preferred Stock are entitled to receive cumulative dividends at a rate of 9% per annum. The Preferred Stock will
automatically convert into common stock when the Company’s common stock market price equals or exceeds $0.28 per share for 30 consecutive
days. At conversion, the value of each dollar of preferred stock (based on a $10 per share price) will convert into 7.1429 common shares
(which results in a $0.14 per common share conversion rate).
In
accordance with the terms of the Preferred Stock, cumulative dividends of $44,675
were declared for the three months ended March
31, 2021 and the three months ended March 31, 2020
Common
stock
As
of year ended December 31, 2019, the Company closed private placements for $0.08
per unit for a total of 1,875,000
units and gross proceeds of $150,000
(the “2019 Units”). Each
2019 Unit was comprised of one common share and two warrants entitling the holder to exercise such warrant for one common share for a
period of two years from the date of issuance. The warrants have exercise price of $0.10 per share. See additional description of the
detail transactions concerning those warrants in Note 11: Related Party Transactions, below.
On
August 8, 2019, director Joel Martin Oppenheim exercised warrants to purchase 150,000 shares of common stock for cash proceeds of $15,000
at an exercise price of $0.10 per share. The shares were issued in January 2020.
On
August 14, 2019, director Joel Martin Oppenheim exercised warrants to purchase 10,000 shares of common stock for cash proceeds of $1,000
at an exercise price of $0.10 per share. The shares were issued in January 2020.
On
July 23, 2019, Joel Oppenheim, a related party, purchased 1 unit of the debt private placement with gross proceeds of $12,500. At maturity,
the holder has the option to either collect the principal or convert the balance into shares/warrants. The conversion would be for 156,250
shares of common stock and warrants to purchase 312,500 shares of common stock at a price of $0.08 per unit. The warrants fair value
was determined to be $15,517 via the Black Sholes Option Pricing Model. Consideration for the purchase was provided though a cash payment
of $2,500 as well as the forgiving of an outstanding bridge loan of $10,000. The shares were issued in January 2020.
On
January 20, 2020, a related party, purchased 1 unit of the debt private placement with gross proceeds of $12,500. At maturity, the holder
has the option to either collect the principal or convert the balance into shares/warrants. The conversion would be for 156,250 shares
of common stock and warrants to purchase 312,500 shares of common stock at a price of $0.08 per unit. Jovian converted the debt into
shares during 2020.
On
February 29, 2020, the Company signed a consulting agreement with a third party to provide Management services related to the SUDS field.
The compensation related terms included the issuance of 250,000 shares of Common Stock. The shares were not issued and earned until December
15, 2020.
On September 1, 2020, the Company entered into
an employment agreement with Mark Allen, to serve as President for a period of six months (with monthly extensions). The President was
to be paid a salary of $15,000 a month. Also, the President was issued a signing bonus of 2,000,000 shares of common stock. One million
(1,000,000) shares were to be issued upon signing and the remaining 1,000,000 shares are to be issued at the completion of a 6-month
probationary period. In addition, the President was granted warrants to purchase 1,000,000 shares of common stock exercisable at $0.08
per share equally vesting over 24 months. The warrants expire in 36 months.
On December 15, 2020, President Mark Allen exercised
warrants to purchase 1,650,000 shares of common stock for cash proceeds of $69,375 at an average exercise price of $0.04 per share.
On December 22, 2020, prior CFO Tariq Chaudhary
was issued 500,000 shares of common stock. These shares were issued in exchange for Mr. Chaudhary releasing the Company of his remaining
deferred outstanding salary balance of $77,500. The shares were issued at an average conversion price of $0.15 per share.
On January 25, 2021, the Company signed an Executive
Salary Payable Agreement with Zel Khan as the Chief Executive Officer. All of Mr. Khan’s previous salary obligation was satisfied
by the issuance of 1,992,272 shares of the Company on January 25, 2021.
Joel Oppenheim, former Director, was issued 316,491
shares on January 25, 2021 pursuant to a Director’s Fees Payable Agreement. The agreement stated that the shares were issued in
full satisfaction of all outstanding director fees payable.
Paul Deputy was reinstated Interim Chief Financial
Officer, signed a Settlement and Mutual Release Agreement. In exchange for releasing the Company for any current, outstanding payroll
and/or service-related liability on January 29, 2021, the Company agreed to pay Mr. Deputy $50,000, to be paid in $2,500 monthly increments,
starting April 1, 2021. In addition, Mr. Deputy was issued 250,000 shares of Petrolia common stock on January 29, 2021.
On March 30, 2021, Mark Allen converted $30,000
of unpaid contract wages from early 2020 into 333,333
common shares of common stock.
On March 30, 2021, Mark Allen converted a
defaulted secured loan of $135,000
as well as $135,000 of guaranteed return. that was due on December 15, 2019. The conversion consisted of 5,400,000 shares
of common stock and 5,400,000 warrants
to purchase common stock. The warrants have a strike price of $0.08 per
share and expire in 36 months.
More details on
the transactions above can be found in Note 11. Related Party Transactions.
The common stock
is currently not actively traded because of SEC Rule 15c2-11.
Warrants
On
September 24, 2015, the Board of Directors of the Company approved the adoption of the 2015 Stock Incentive Plan (the “Plan”).
The Plan provides an opportunity, subject to approval of our Board of Directors, of individual grants and awards, for any employee, officer,
director or consultant of the Company. The maximum aggregate number of shares of common stock which may be issued pursuant to awards
under the Plan, as amended on November 7, 2017, was 40,000,000 shares. The plan was ratified by the stockholders of the Company on April
14, 2016.
Continuity
of the Company’s common stock purchase warrants issued and outstanding is as follows:
SCHEDULE OF COMMON STOCK PURCHASE WARRANTS ISSUED AND OUTSTANDING
| |
Warrants | | |
Weighted
Average Exercise
Price | |
Outstanding at year ended December 31, 2019 | |
| 57,043,837 | | |
$ | 0.14 | |
Granted | |
| 18,650,000 | | |
| 0.15 | |
Exercised | |
| (1,650,00 | ) | |
| 0.08 | |
Expired | |
| (33,279,170 | ) | |
| 0.19 | |
Outstanding at December 31, 2020 | |
| 40,764,667 | | |
$ | |
Granted | |
| 6,400,000 | | |
| 0.08 | |
Expired | |
| (2,873,833 | ) | |
| 0.11 | |
Outstanding at March 31, 2021 | |
| 44,290,834 | | |
$ | 0.12 | |
As
of March 31, 2021, the weighted-average remaining contractual life of warrants outstanding was 1.41 years (December 31, 2020 –
1.39 years).
As
of March 31, 2021, the intrinsic value of warrants outstanding is $0.00 (December 31, 2020 - $0.00).
The
table below summarizes warrant issuances during the three months ended March 31, 2021, and year ended December 31, 2020:
SCHEDULE OF WARRANTS ISSUANCE DURING PERIOD
| |
March
31, 2021 | | |
December
31, 2020 | |
Warrants granted: | |
| | | |
| | |
Board of Directors
and Advisory Board service | |
| 750,000 | | |
| 5,250,000 | |
Pursuant to employment
agreements | |
| — | | |
| 1,000,000 | |
Pursuant to financing arrangements | |
| 250,000 | | |
| 1,000,000 | |
Pursuant to consulting
agreements | |
| — | | |
| 250,000 | |
Pursuant
to loan agreements | |
| — | | |
| 11,150,000 | |
Pursuant to extinguishment of debt | |
| 5,400,000 | | |
| — | |
Total | |
| 6,400,000 | | |
| 18,650,000 | |
The
warrants were valued using the Black Scholes Option Pricing Model with the range of assumptions outlined below. Expected life was determined
based on historical data of the Company.
SCHEDULE OF FAIR VALUE OF ASSUMPTION
| |
March
31, 2021 | | |
December
31, 2020 | |
Risk-free
interest rate | |
| 0.16%
to 0.35 | % | |
| 1.65%
to 2.38 | % |
Expected
life | |
| 2.0
to 3.0 years | | |
| 1.0
to 3.0 years | |
Expected
dividend rate | |
| 0 | % | |
| 0 | % |
Expected
volatility | |
| 449%
to 479 | % | |
| 240%
to 274 | % |
NOTE
11. RELATED PARTY TRANSACTIONS
On
January 20, 2020, Jovian Petroleum, a related party, purchased 1 unit of the debt private placement with gross proceeds of $12,500.
At maturity, the holder has the option to either collect the principal or convert the balance into shares/warrants. The conversion would
be for 156,250
shares of common stock and warrants to purchase
312,500
shares of common stock at a price of $0.08
per unit. Jovian converted the debt into shares
during 2020.
On
May 29, 2020, Petrolia Energy Corporation acquired a 50%
working interest in approximately 28,000
net working interest acres located in the Utikuma
Lake area in Alberta, Canada. The property is an oil-weighted asset currently producing approximately 500 bopd of light oil. The
working interest was acquired from Blue Sky Resources Ltd. in an affiliated party transaction as Zel C. Khan, the Company’s former
Chief Executive Officer, is related to the ownership of Blue Sky. Blue Sky acquired a 100%
working interest in the Canadian Property from Vermilion Energy Inc. via Vermilion’s subsidiary Vermilion Resources. The effective
date of the acquisition was May 1, 2020. The total purchase price of the property was $2,000,000
(CAD), with $1,000,000
of that total due initially. The additional $1,000,000
was contingent on the future price of WTI crude.
At the time WTI price exceeded $50/bbl, the Company
would pay an additional $750,000. In addition, at the time WTI price exceeded $57/bbl the Company would pay an additional $250,000 (for
a cumulative contingent total of $1,000,000).
Note that WTI crude prices did not exceed those price thresholds until 2021, so the contingent $1,000,000
will
not be recorded until 2021. Included in the terms of the agreement, the Company also funded their portion of the Alberta Energy Regulator
(“AER”) bond fund requirement ($607,357
USD),
necessary for the wells to continue in production after the acquisition. Additional funds ($390,159
USD)
remain in the other current asset balance for future payments to BSR, related to the acquisition.
On
September 1, 2020, the Company entered into an employment agreement with Mark Allen, to serve
as President for a period of six months (with monthly extensions). The President was to be
paid a salary of $15,000 a month. Also, the President was issued a signing bonus of 2,000,000
shares of common stock. One million (1,000,000) shares were to be issued upon signing and
the remaining 1,000,000 shares are to be issued at the completion of a 6-month probationary
period. In addition, the President was granted warrants to purchase 1,000,000 shares of common
stock exercisable at $0.08 per share equally vesting over 24 months. The warrants expire
in 36 months.
On
December 15, 2020, President Mark Allen exercised warrants to purchase 1,650,000 shares of common stock for cash proceeds of $69,375
at an average exercise price of $0.04 per share.
On
December 15, 2020, in accordance with the Mark Allen’s Consulting agreement that was signed prior to the Employment agreement,
the Company issued Mr. Allen 250,000 shares of common stock as part of the compensation terms of that agreement.
On
December 22, 2020, prior CFO Tariq Chaudhary was issued 500,000 shares of common stock. These shares were issued in exchange for Mr.
Chaudhary releasing the Company of his remaining deferred outstanding salary balance of $77,500. The shares were issued at an average
conversion price of $0.15 per share.
On
January 7, 2021, prior Board Member Joel Oppenheim was issued 316,491 shares
of common stock. These shares were in exchange for Mr. Oppenheim releasing the Company of his remaining board compensation balance
of $60,000.
The shares were issued at the price on that date of $0.02. This created a gain of $53,670 that was recorded as additional paid in capital, due to the related party nature of
the transaction.
On
January 11, 2021, prior CEO Zel Khan was issued 1,992,272 shares
of common stock. These shares were in exchange for Mr. Khan releasing the Company of his remaining deferred outstanding salary
balance of $325,000.
The shares were issued at the price on that date of $0.025.
This created a gain of $275,193 that was recorded as additional paid in capital, due to the related party nature of the transaction. On
January 29, 2021, prior CFO Paul Deputy signed an agreement that in exchange for 250,000 shares
of common stock and 20
monthly payments of $2,500 starting
in April 2021, he would release the Company of his remaining deferred outstanding salary balance of $192,520.04.
The shares were issued at the price on that date of $0.033. This created a gain of $134,270 that was recorded as additional paid in capital, due to the related party nature
of the transaction.
On
March 30, 2021, President Mark Allen was issued 333,333
shares of common stock. These shares were in
exchange for Mr. Allen releasing the company of an outstanding consulting fee balance of $30,000.
The shares were issued at the price on that date of $0.033. This created a gain of $19,001 that was recorded as additional paid in
capital, due to the related party nature of the transaction.
On
March 31, 2021, President Mark Allen was issued 5,400,000
shares of common stock. These shares were in
exchange for Mr. Allen releasing the company of an outstanding loan of $135,000
and outstanding guaranted return on that loan
of $135,000.
The shares were issued at the price on that date of $0.033.
In addition, the president was granted warrants
to purchase 5,400,000
shares of common stock at $0.08,
vesting immediately. The warrants expire in 36
months. The warrants were valued at $200,378
using the Black Sholes method. This created a loss of $108,578 that was recorded as a reduction to additional paid in capital, due to
the related party nature of the transaction.
NOTE
12. SEGMENT REPORTING
The
Company has a single reportable operating segment, Oil and Gas Exploration and Production, which includes exploration, development, and
production of current and potential oil and gas properties. Results of operations from producing activities were as follows:
SCHEDULE OF LONG-LIVED ASSETS
| |
Canada | | |
United
States | | |
Total | |
Three months ended March 31, 2021 | |
| | | |
| | | |
| | |
Revenue | |
$ | 1,069,595 | | |
$ | 12,653 | | |
$ | 1,082,248 | |
Production costs | |
| (510,424 | ) | |
| (161,132 | ) | |
| (671,556 | ) |
Depreciation, depletion,
amortization and accretion | |
| (257,218 | ) | |
| (14,127 | ) | |
| (271,345 | ) |
Results of operations
from producing activities | |
$ | 301,953 | | |
$ | (162,606 | ) | |
$ | 139,347 | |
| |
| | | |
| | | |
| | |
Total long-lived assets,
March 31, 2021 | |
$ | 1,527,541 | | |
$ | 4,261,283 | | |
$ | 5,788,824 | |
| |
| | | |
| | | |
| | |
Three months ended March 31, 2020 | |
| | | |
| | | |
| | |
Revenue | |
$ | 474,632 | | |
$ | 6,489 | | |
$ | 481,121 | |
Production costs | |
| (481,447 | ) | |
| (122,660 | ) | |
| (604,107 | ) |
Depreciation, depletion,
amortization and accretion | |
| (336,323 | ) | |
| (15,000 | ) | |
| (351,323 | ) |
Results of operations
from producing activities | |
$ | (343,138 | ) | |
$ | (131,172 | ) | |
$ | (474,309 | ) |
| |
| | | |
| | | |
| | |
Total long-lived assets,
March 31, 2020 | |
$ | 733,777 | | |
$ | 10,338,584 | | |
$ | 11,072,361 | |
NOTE
13. SUBSEQUENT EVENTS
On April 8, 2021, the State of New Mexico Energy,
Minerals and Natural Resources Oil Conservation Division (“OCD”) sent the Company a Notice of Violation alleging that the
Company was not in compliance with certain New Mexico Oil and Gas Act regulations associated with required reporting, inactive wells,
and financial assurance requirements. The OCD proposed an assessment of approximately $35,100. On December 30, 2021, the Company entered
a Stipulated Final Order to resolve the matter. The company agreed to submit appropriate forms for the identified wells, open an escrow
account and deposit funds into it, and provide the OCD with a report proposing deadlines for bringing all remaining wells into compliance.
The first two wells were plugged in June of 2022. See Form 8-K reference in Exhibits section below.
Effective
September 1, 2021, the Board accepted Zel Khan’s resignation as Chief Executive Officer (“CEO”). See Form 8-K filing
reference in Exhibits section below.
Effective
September 1, 2021, Mark M Allen was promoted from President to CEO. See Form 8-K reference in Exhibits section below.
In October and November of 2021 and January of
2022, the Company entered into various subscription agreements to sell an aggregate amount of 11,000 shares of its’ newly designated
Series C Convertible Preferred Stock at $10 per share. See Form 8-K filing reference in Exhibits section below.
On October 25, 2021, the Company issued one share
each of its newly designated shares of Series B Preferred Stock to Board of Directors members James Burns, Leo Womack and Ivar Siem.
These shares vote in aggregate sixty percent of the total vote on all shareholder matters. See Form 8-K filing reference in Exhibits
section below.
On December 30, 2021, the Company reached a settlement
with Argonaut Insurance Company (Argo), regarding a final judgement of $52,749 that had been issued on March 6, 2018. The company paid
Argo a lump sum of $15,000 in full satisfaction of the original judgement. See From 8-K reference in Exhibits section below.
On February 16, 2022, the Company entered into
both a Purchase and Sale Agreement and a Debt Settlement Agreement with Prospera Energy. Prospera agreed to purchase the Company’s
twenty-eight percent (28%) working interest in the Cuthbert, Luseland and Heart Hills assets in Saskatchewan and Alberta. Under these
agreements Prospera will forgive $1,720,613 in debt from the Company, arising from joint interest billings. Prospera will also issue
a $510,000 convertible debenture to Petrolia Canada, which can be converted to common share units. Lastly, Prospera will pay the Company
$75,000 CND in five equal installments. See Form 8-k reference in Exhibits section below.
On March 11, 2022, the Company filed a lawsuit
in Harris County Texas against Jovian Petroleum Corporation, Zel Khan and Quinten Beasley. The lawsuit claims fraud and breach of contract
against all named defendants, as well as breach of fiduciary duty claims against Zel Khan and Quinten Beasley. See Form 8-K reference
in Exhibits section below.
On March 16, 2022, Petrolia Canada Corporation
received a Notice of Intention to Retain Collateral Pursuant to Section 62 of the Personal Property Security Act (Alberta) from the counsel
of Blue Sky Resources Ltd. related to a Loan Agreement and General Security Agreement between Petrolia Canada Corporation and Emmett
Lescroart. Petrolia Canada Corporation was notified that Blue Sky Resources Ltd., as assignee of the Emmet Lescroart loan, intends to
retain the Utikuma loan collateral pursuant to the General Security Agreement with Petrolia Canada Corporation. On March 30, 2022, Petrolia
Canada Corporation’s counsel responded to Blue Sky Resources, Ltd. with a Notice of Objection.
On January 28, 2022, the Securities and Exchange
Commission filed an Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange
Act of 1934 to suspend for a period not exceeding twelve months or revoke the registration of each class of securities registered pursuant
to Section 12 of the Exchange Act of the Company. The Division of Enforcement at the Securities and Exchange Commission (the “Division”)
filed a Motion for Summary Disposition in this matter and the Company filed a Response to the Motion for Summary Disposition in April
2022. On May 5, 2022, the Division filed its Response in Support of its Motion for Summary Disposition.
Effective June 15, 2022, Heather Monk was promoted
from Corporate Controller to Interim CFO.
On June 13, 2022, a Letter Agreement was signed
between Blue Sky Resources Ltd. (“BSR”) and Petrolia Energy Corporation whereby Petrolia Canada Corporation (“PCC”)
will sell to BSR its 50% working interest in the Utikuma Lake oil field. The details of the Letter Agreement will be disclosed in an
upcoming Form 8-K.
FORWARD
LOOKING STATEMENTS
This
Report contains statements which, to the extent that they do not recite historical fact, constitute forward-looking statements. These
statements can be identified by the fact that they do not relate strictly to historical or current facts and may include the words “may,”
“will,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,”
“estimate,” “intend,” “plan” or other words or expressions of similar meaning. We have based these
forward-looking statements on our current expectations about future events. The forward-looking statements include statements that reflect
management’s beliefs, plans, objectives, goals, expectations, anticipations and intentions with respect to our financial condition,
results of operations, future performance and business, including statements relating to our business strategy and our current and future
development plans.
The
potential risks and uncertainties that could cause our actual financial condition, results of operations and future performance to differ
materially from those expressed or implied in this report include:
|
● |
The
sale prices of crude oil; |
|
● |
The
amount of production from oil wells in which we have an interest; |
|
● |
Lease
operating expenses; |
|
● |
International
conflict or acts of terrorism; |
|
● |
General
economic conditions; and |
|
● |
Other
factors disclosed in this report. |
Although
we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level
of activity, performance or achievements. Many factors discussed in this report, some of which are beyond our control, will be important
in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from the
forward-looking statements. In light of these and other uncertainties, you should not regard the inclusion of a forward-looking statement
in this Report as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such
forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by law.
You
should read the matters described in “Risk Factors” and the other cautionary statements made in, and incorporated by reference
in, this Report as being applicable to all related forward-looking statements wherever they appear in this Report. We cannot assure you
that the forward-looking statements in this Report will prove to be accurate and therefore prospective investors are encouraged not to
place undue reliance on forward-looking statements. Other than as required by law, we undertake no obligation to update or revise these
forward-looking statements, even though our situation may change in the future.
Please
see the “Glossary of Oil and Gas Terms” in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with
the SEC on May 16, 2022 (the “2020 Annual Report”) for a list of abbreviations and definitions used throughout this Report.
This
information should be read in conjunction with the unaudited condensed consolidated interim financial statements and the notes thereto
included in this Quarterly Report on Form 10-Q and Part II, Item 7, Management’s Discussion and Analysis of Financial Condition
and Results of Operations contained in our 2020 Annual Report.
Certain
capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our consolidated
financial statements included above under “Part I – Financial Information” – “Item 1. Consolidated
Financial Statements”.
Unless
the context requires otherwise, references to the “Company,” “we,” “us,” “our,”
“Petrolia” and “Petrolia Energy Corp.” refer specifically to Petrolia Energy Corp. and its wholly
owned subsidiaries.
In
addition, unless the context otherwise requires and for the purposes of this Report only:
|
● |
“Bbl”
refers to one stock tank barrel, or 42 U.S. gallons liquid volume, used in this Report in reference to crude oil or other liquid
hydrocarbons; |
|
● |
“Boe”
refers to barrels of oil equivalent, determined using the ratio of one Bbl of crude oil, condensate or natural gas liquids, to six
Mcf of natural gas; |
|
● |
“Mcf”
refers to a thousand cubic feet of natural gas; |
|
● |
“SEC”
or the “Commission” refers to the United States Securities and Exchange Commission; and |
|
● |
“Securities
Act” refers to the Securities Act of 1933, as amended. |