NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
1
|
ACCOUNTING
POLICIES AND ESTIMATES
|
The accompanying unaudited condensed
financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”)
for interim financial information with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, these unaudited
condensed financial statements do not include all of the information and disclosures required by U.S. GAAP for complete financial
statements. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments (consisting
only of normal recurring adjustments), which we consider necessary, for a fair presentation of those financial statements. The
results of operations and cash flows for the nine months ended September 30, 2018 may not necessarily be indicative of results
that may be expected for any succeeding quarter or for the entire fiscal year. The information contained in this quarterly report
on Form 10-Q should be read in conjunction with our audited financial statements included in our annual report on Form 10-K as
of and for the year ended December 31, 2017 as filed with the Securities and Exchange Commission (the “SEC”).
Significant accounting policies
are described in Note 2 to the consolidated financial statements included in Item 8 of our annual report on Form 10-K as of December
31, 2017.
The preparation of unaudited
consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions, which are
evaluated on an ongoing basis, that affect the amounts reported in the unaudited consolidated financial statements and accompanying
notes. Management bases its estimates on historical experience and on various other assumptions that it believes are reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
and the amounts of revenues and expenses that are not readily apparent from other sources. Actual results could differ from those
estimates and judgments. In particular, significant estimates and judgments include those related to: the estimated useful lives
for plant and equipment, the fair value of warrants and stock options granted for services or compensation, estimates of the probability
and potential magnitude of contingent liabilities, derivative liabilities, the valuation allowance for deferred tax assets due
to continuing operating losses, those related to revenue recognition and the allowance for doubtful accounts.
Making estimates requires management
to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation
or set of circumstances that existed at the date of the unaudited consolidated financial statements, which management considered
in formulating its estimate could change in the near-term due to one or more future confirming events. Accordingly, the actual
results could differ significantly from our estimates.
All amounts referred to in the
notes to the unaudited consolidated financial statements are in United States Dollars ($) unless stated otherwise.
|
b)
|
Principles of Consolidation
|
The unaudited consolidated financial
statements include the financial statements of the Company and its subsidiaries in which it has a majority voting interest. All
significant inter-company accounts and transactions have been eliminated in the unaudited consolidated financial statements. The
entities included in these unaudited consolidated financial statements are as follows:
Pledge Petroleum Corp –
Parent Company
Nova’s Energy USA Inc.
(wholly owned).
PLEDGE PETROLEUM CORP.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1
|
ACCOUNTING POLICIES AND ESTIMATES (continued)
|
|
c)
|
Recent Accounting Pronouncements
|
In August 2018, the FASB issued
ASU 2018-13, Fair Value Measurement (Topic 820) Changes to the Disclosure Requirements for Fair Value Measurement.
The amendments in this Update
modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement.
Removals
The following disclosure requirements
were removed from Topic 820:
|
1.
|
The amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy
|
|
2.
|
The policy for timing of transfers between levels
|
|
3.
|
The valuation processes for Level 3 fair value measurements
|
|
4.
|
For nonpublic entities, the changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period.
|
Modifications
The following disclosure requirements
were modified in Topic 820:
|
1.
|
In lieu of a rollforward for Level 3 fair value measurements, a nonpublic entity is required to disclose transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities.
|
|
2.
|
For investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse
only
if the investee has communicated the timing to the entity or announced the timing publicly.
|
|
3.
|
The amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date.
|
Additions
The following disclosure requirements
were added to Topic 820; however, the disclosures are not required for nonpublic entities:
|
1.
|
The changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period
|
|
2.
|
The range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements.
|
In addition, the amendments
eliminate
at a minimum
from the phrase
an entity shall disclose at a minimum
to promote the appropriate exercise
of discretion by entities when considering fair value measurement disclosures and to clarify that materiality is an appropriate
consideration of entities and their auditors when evaluating disclosure requirements.
The amendments in this Update
are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.
The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used
to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively
for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should
be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this
Update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this Update and delay adoption
of the additional disclosures until their effective date.
The impact of this ASU on the
Company’s financial statements is not expected to be material.
PLEDGE PETROLEUM CORP.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
1
|
ACCOUNTING POLICIES AND ESTIMATES (continued)
|
|
c)
|
Recent
Accounting Pronouncements (continued)
|
In August , the FASB issued
ASU 2018-15, Intangibles – Goodwill and Other Internal – Use Software (Subtopic 350-40).
The amendments in this Update
align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with
the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements
that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service
contract is not affected by the amendments in this Update.
The amendments in this Update
require an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine
which implementation costs to capitalize as an asset related to the service contract and which costs to expense. Costs to develop
or obtain internal-use software that cannot be capitalized under Subtopic 350-40, such as training costs and certain data conversion
costs, also cannot be capitalized for a hosting arrangement that is a service contract. Therefore, an entity (customer) in a hosting
arrangement that is a service contract determines which project stage (that is, preliminary project stage, application development
stage, or postimplementation stage) an implementation activity relates to. Costs for implementation activities in the application
development stage are capitalized depending on the nature of the costs, while costs incurred during the preliminary project and
postimplementation stages are expensed as the activities are performed.
The amendments in this Update
also require the entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract
over the term of the hosting arrangement. The term of the hosting arrangement includes the non-cancellable period of the arrangement
plus periods covered by (1) an option to extend the arrangement if the customer is reasonably certain to exercise that option,
(2) an option to terminate the arrangement if the customer is reasonably certain not to exercise the termination option, and (3)
an option to extend (or not to terminate) the arrangement in which exercise of the option is in the control of the vendor. The
entity also is required to apply the existing impairment guidance in Subtopic 350-40 to the capitalized implementation costs as
if the costs were long-lived assets. The amendments in this Update clarify that the capitalized implementation costs related to
each module or component of a hosting arrangement that is a service contract are also subject to the guidance in Subtopic 360-10
on abandonment.
The amendments in this Update
also require the entity to present the expense related to the capitalized implementation costs in the same line item in the statement
of income as the fees associated with the hosting element (service) of the arrangement and classify payments for capitalized implementation
costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element. The entity
is also required to present the capitalized implementation costs in the statement of financial position in the same line item that
a prepayment for the fees of the associated hosting arrangement would be presented.
The amendments in this Update
are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those
fiscal years. For all other entities, the amendments in this Update are effective for annual reporting periods beginning after
December 15, 2020, and interim periods within annual periods beginning after December 15, 2021. Early adoption of the amendments
in this Update is permitted, including adoption in any interim period, for all entities.
The amendments in this Update
should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.
The impact of this ASU on the
Company’s financial statements is not expected to be material.
PLEDGE PETROLEUM CORP.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
1
|
ACCOUNTING POLICIES AND ESTIMATES (continued)
|
|
c)
|
Recent
Accounting Pronouncements
|
In October 2018, the FASB issued
ASU 2018-17, Consolidation (Topic 810), Targeted Improvements to Related Party Guidance for Variable Interest Entities.
Under the amendments in this
Update, a private company (reporting entity) may elect not to apply Variable Interest Entity (“VIE”) guidance to legal
entities under common control (including common control leasing arrangements) if both the parent and the legal entity being evaluated
for consolidation are not public business entities. The accounting alternative provides an accounting policy election that a private
company will apply to all current and future legal entities under common control that meet the criteria for applying this alternative.
In other words, the alternative cannot be applied to select common control arrangements that meet the criteria for applying this
accounting alternative. If the alternative is elected, a private company should continue to apply other consolidation guidance,
particularly the voting interest entity guidance, unless another scope exception applies.
Under the accounting alternative,
a private company should provide detailed disclosures about its involvement with and exposure to the legal entity under common
control. Effectively, the amendments in this Update expand the private company alternative provided by Accounting Standards Update
No. 2014-07,
Consolidation (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements,
not to apply the VIE guidance to qualifying common control leasing arrangements
.
Because the private company accounting
alternative in this Update applies to all common control arrangements that meet specific criteria and not just leasing arrangements,
the amendments in Update 2014-07 are superseded by the amendments in this Update.
Decision-Making Fees
Indirect interests held through
related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to
decision makers and service providers are variable interests. This is consistent with how indirect interests held through related
parties under common control are considered for determining whether a reporting entity must consolidate a VIE.
For entities other than private
companies, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and interim periods
within those fiscal years. The amendments in this Update are effective for a private company for fiscal years beginning after December
15, 2020, and interim periods within fiscal years beginning after December 15, 2021. All entities are required to apply the amendments
in this Update retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period
presented. Early adoption is permitted.
The impact of this ASU on the
Company’s financial statements is not expected to be material.
Any new accounting standards,
not disclosed above, that have been issued or proposed by FASB that do not require adoption until a future date are not expected
to have a material impact on the financial statements upon adoption.
PLEDGE PETROLEUM CORP.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
1
|
ACCOUNTING POLICIES AND ESTIMATES (continued)
|
The preparation of unaudited
consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions, which are
evaluated on an ongoing basis, that affect the amounts reported in the unaudited consolidated financial statements and accompanying
notes. Management bases its estimates on historical experience and on various other assumptions that it believes are reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
and the amounts of revenues and expenses that are not readily apparent from other sources. Actual results could differ from those
estimates and judgments. In particular, significant estimates and judgments include those related to: the estimated useful lives
for plant and equipment, the fair value of warrants and stock options granted for services or compensation, estimates of the probability
and potential magnitude of contingent liabilities, derivative liabilities and; the valuation allowance for deferred tax assets
due to continuing operating losses.
Making estimates requires management
to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation
or set of circumstances that existed at the date of the unaudited consolidated financial statements, which management considered
in formulating its estimate could change in the near-term due to one or more future confirming events. Accordingly, the actual
results could differ significantly from our estimates.
Certain conditions may exist
as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved
when one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities, and
such assessment inherently involves an exercise of judgment.
If the assessment of a contingency
indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the
estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential
material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of
the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.
Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case
the guarantee would be disclosed.
|
f)
|
Cash
and Cash Equivalents
|
The Company considers all highly
liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. At September
30, 2018 and December 31, 2017, the Company had no cash equivalents.
The Company assesses credit
risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times
may exceed federally insured limits. At September 30, 2018, the Company had cash balances of $160,067, of which all are covered
by the federally insured limits.
Parties are considered to be
related to the Company if the parties that, directly or indirectly, through one or more intermediaries, control, are controlled
by, or are under common control with the Company, or own in aggregate, on a fully diluted basis 5% or more of the Company’s
stock. Related parties also include principal owners of the Company, its management, members of the immediate families of principal
owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly
influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented
from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded
at fair value of the goods or services exchanged. Property purchased from a related party is recorded at the cost to the related
party and any payment to or on behalf of the related party in excess of the cost is reflected as a distribution to related party.
PLEDGE PETROLEUM CORP.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The Company has cash balances
of $160,067 as of September 30, 2018, which is not sufficient to meet current expenses for at least the next twelve month period
from November 14, 2018. On March 23, 2018, after obtaining approval of the majority shareholder and the majority of the minority
of the shareholders the Company sold substantially all of its assets for $650,000 and simultaneously therewith the entire shareholding
of the majority shareholder, Ervington, was purchased by the Company for gross proceeds of $8,500,000. Substantial doubt exists
about the Company’s ability to continue as a going concern, there are no immediate plans to raise additional funding through
equity or debt issuances and the ability to conclude a suitable acquisition without additional resources is uncertain.
Prepaid expenses consisted of the following:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Prepaid insurance
|
|
$
|
6,010
|
|
|
$
|
22,483
|
|
Prepaid professional fees
|
|
|
-
|
|
|
|
3,333
|
|
|
|
$
|
6,010
|
|
|
$
|
25,816
|
|
Plant and Equipment consisted of the following:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
|
|
Cost
|
|
|
Accumulated
depreciation
|
|
|
Net book
value
|
|
|
Net book
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture and equipment
|
|
$
|
6,700
|
|
|
$
|
(3,462
|
)
|
|
$
|
3,238
|
|
|
$
|
4,243
|
|
Computer equipment
|
|
|
11,130
|
|
|
|
(9,220
|
)
|
|
|
1,910
|
|
|
|
4,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,830
|
|
|
$
|
(12,682
|
)
|
|
$
|
5,148
|
|
|
$
|
8,935
|
|
Depreciation expense was $1,263
and $1,263 for the three months ended September 30, 2018 and 2017, respectively, and $3,787 and $4,128 for the nine months ended
September 30, 2018 and 2017, respectively.
On March 23, 2018, the Company
concluded an Asset Purchase Agreement with an affiliate (the “Purchaser”) of Ervington Investment Limited, the previous
holder of a majority of the Company’s outstanding voting securities, pursuant to which the Company sold to the Purchaser
substantially all of its assets, including all pertinent intellectual property rights, comprising its business of implementing
its plasma pulse technology, for $650,000 (the “Asset Sale”).
The Asset Sale is to a related
party and the profit realized of $650,000 was credited to additional paid in capital.
PLEDGE PETROLEUM CORP.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
5
|
ACCRUED EXPENSES AND OTHER PAYABLES
|
Accrued expenses and other payables consisted of the
following:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Royalties Payable
|
|
$
|
-
|
|
|
$
|
14,653
|
|
Other
|
|
|
1,154
|
|
|
|
13,199
|
|
Audit Fee Accrual
|
|
|
30,000
|
|
|
|
-
|
|
|
|
$
|
31,154
|
|
|
$
|
27,852
|
|
The Company has authorized 500,000,000
common shares with a par value of $0.001 each. The Company has 298,558,931 and 268,558,931 shares of common stock issued as of
September 30, 2018 and December 31, 2017 respectively, and has 234,256,464 and 268,558,931 shares of common stock outstanding as
of September 30, 2018 and December 31, 2017, respectively.
On March 23, 2018, the Company concluded an Asset Sale Agreement as discussed in note 5 above, simultaneously
with the Asset Sale Agreement, the Company concluded a Share Repurchase Agreement with Ervington to repurchase all of the outstanding
securities held by Ervington for $8,500,000 (the “Share Repurchase”). The repurchase constituted a change of
control. Upon conclusion of the Repurchase, Ivan Persiyanov, resigned from all positions he holds as an officer and director of
the Company and its subsidiaries. After the completion of the Asset Sale, the Company ceased all activities related to its existing
business while evaluating other business opportunities
In terms of the above, the Company
repurchased 64,302,467 shares of common stock from Ervington, which shares are being retained as treasury shares.
On May 2, 2018 the Company issued
30,000,000 restricted shares of common stock to the directors of the Company as compensation for services rendered. These shares
vest as to one third immediately, one third on May 2, 2019 and one third on May 2, 2020.
The restricted stock granted and exercisable at September
30, 2018 is as follows:
|
|
|
|
Restricted Stock Granted
|
|
|
Restricted Stock Vested
|
|
Grant date price
|
|
|
|
Number
granted
|
|
|
|
Weighted
average exercise
price
|
|
|
|
Number
vested
|
|
|
|
Weighted
average exercise
price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.01
|
|
|
|
30,000,000
|
|
|
$
|
0.01
|
|
|
|
10,000,000
|
|
|
$
|
0.01
|
|
The Company recorded an expense of $25,000 and $141,667
for the three and nine months ended September 30, 2018, respectively, related to the restricted stock options granted
to the directors.
The Company has 10,000,000 authorized
preferred shares with a par value of $0.001 each, with 5,000,000 preferred shares designated as Series A-1 Convertible Preferred
Stock (“Series A-1 Shares”), 500,000 preferred shares designated as Series B Preferred Stock and 4,500,000 preferred
shares designated as Series C Preferred Stock.
In terms of the Share Repurchase
Agreement entered into, discussed above, the Company repurchased 3,137,500 shares of Series A-1 Preferred Stock and 4,500,000 shares
of Series C Preferred Stock from Ervington, which shares are being retained as treasury shares.
|
i)
|
Series
A-1 Convertible Preferred Stock
|
The Company has designated 5,000,000
preferred shares as Series A-1 Convertible Preferred Stock (“Series A-1 Shares”), with 3,137,500 shares of Series
A-1 Stock issued as of September 30, 2018 and December 31, 2017, and has outstanding 0 and 3,137,500 shares of Series A-1 Stock
as of September 30, 2018 and December 31, 2017, respectively.
PLEDGE PETROLEUM CORP.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
6
|
STOCKHOLDERS’ EQUITY (continued)
|
|
b)
|
Preferred
stock (continued)
|
|
ii)
|
Series
B Convertible Preferred Stock
|
The Company has designated 500,000
preferred shares as Series B Convertible Preferred Stock (“Series B Shares”), with 40,000 Series B Shares issued and
outstanding as of September 30, 2018 and December 31, 2017, which are convertible into 4,000,000 shares of common stock.
The rights, privileges and preferences
of the Series B Shares are summarized as follows:
Conversion
Each share of the Series B Shares
is convertible at any time prior to the issuance of a redemption notice by the Company into such number of shares of Common Stock
by dividing the Stated value ($10) of the Series B Shares by $0.10 and is subject to adjustment for dividends or distributions
made in common stock, the issue of securities convertible into common stock, stock splits, reverse stock splits, or reclassifications
of common stock. No conversion will take place if the holder of the Series B Shares will beneficially own in excess of 4.99% of
the shares of Common Stock outstanding immediately after conversion. As of the date hereof, each Series B Share converts into
100 shares of common stock.
Company Redemption
The Company has the right, at any
time after the date the Series B Shares have been issued, to redeem all or a portion of any Holder's Series B Shares at a price
per Series B Share equal to the issue price per Series B Share multiplied by 120%
Voting Rights
Each holder of Series B Shares
is entitled to vote on all matters submitted to a vote of the stockholders of the Company and is entitled to votes equal to the
number of shares of Common Stock into which Series B Shares could be converted, and the holders of shares of Series B Shares and
Common Stock will vote together as a single class on all matters submitted to the stockholders of the Company.
PLEDGE PETROLEUM CORP.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
6
|
STOCKHOLDERS’ EQUITY (continued)
|
|
b)
|
Preferred stock (continued)
|
|
ii)
|
Series
B Convertible Preferred Stock (continued)
|
Dividends
The holders of the Series B Shares
are entitled to receive cumulative dividends at the rate of eight percent per annum of the issue price per share, accrued daily
and payable annually in arrears on December 31st of each. Such dividends accrue on any given share from the day of original issuance
of such share. Such dividends are cumulative, whether or not declared by the Board of Directors, but are non-compounding. Any dividend
payable on a dividend payment date may be paid, at the option of the Company, either (i) in cash or (ii) in shares of common stock
at an issue price of $0.10 per common share. In the event that pursuant to applicable law or contract the Company is prohibited
or restricted from paying in cash the full dividends to which the holders of the Series B Shares are entitled, the cash amount
available pursuant to applicable law or contract will be distributed among the holders of the Series B Shares ratably in proportion
to the full amounts to which they would otherwise be entitled and any remaining amount due to holders of the Series B Shares will
be payable in cash.
Liquidation Preference
In the event of any liquidation,
dissolution or winding up of the Company, either voluntary or involuntary, the holders of the Series B Shares are entitled to receive,
prior and in preference to any distribution of any assets of the Company to the holders of any other preferred stock of the Company
and subordinate to any distribution to the Series A-1 Shares, and prior and in preference to any distribution of any assets of
the Company to the holders of the Common Stock, the amount of 120% of the issue price per share. In addition, the Series B holder
has agreed to vote to subordinate the series B Preferred stock liquidation preferences to the Series C Preferred stock preferences.
The Company has undeclared dividends
on the Series B Preferred stock amounting to $190,553 as of September 30, 2018. If the dividends are paid in stock, the beneficial
conversion feature of these undeclared dividends will be recorded upon the declaration of these dividends. The computation of loss
per common share for the nine months ended September 30, 2018 takes into account these undeclared dividends.
PLEDGE PETROLEUM CORP.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
6
|
STOCKHOLDERS’ EQUITY (continued)
|
|
b)
|
Preferred
stock (continued)
|
|
iii)
|
Series
C Convertible Preferred Stock
|
The Company has designated 4,500,000
preferred shares as Series C Convertible Preferred Stock (“Series C Shares”), with 4,500,000 shares of Series C Stock
issued as of September 30, 2018 and December 31, 2017, and 0 and 4,500,000 shares of Series C Stock outstanding as of September
30, 2018 and December 31, 2017, respectively.
The Company’s Board of
Directors approved the Company’s 2008 Stock Option Plan (the “Stock Plan”) for the issuance of up to 5,000,000
shares of common stock to be granted through incentive stock options, nonqualified stock options, stock appreciation rights, dividend
equivalent rights, restricted stock, restricted stock units and other stock-based awards to officers, other employees, directors
and consultants of the Company and its subsidiaries. After the reverse stock split in August 2012, a total of 100,000 shares were
available for grant. Subsequent to the reverse split the Board of Directors approved an increase in the number of awards available
for grant to 2,100,000 shares. The exercise price of stock options under the Stock Plan is determined by the Board of Directors,
and may be equal to or greater than the fair market value of the Company’s common stock on the date the option is granted.
Options become exercisable over various periods from the date of grant, and generally expire ten years after the grant date.
At September 30, 2018 and December
31, 2017 there were 152,754 and 380,950 plan options outstanding, respectively, under the Stock Option Plan.
The vesting provisions for these
stock options are determined by the board of directors at the time of grant, there are no unvested options outstanding as of September
30, 2018.
No options were issued during
the nine months ended September 30, 2018 and the year ended December 31, 2017.
In the event of the employees’
termination, the Company will cease to recognize compensation expense.
A summary of all of our option
activity during the period January 1, 2017 to September 30, 2018 is as follows:
|
|
No. of shares
|
|
|
Exercise price
per share
|
|
|
Weighted
average exercise
price
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2017
|
|
|
3,380,950
|
|
|
|
$0.08 to $13.50
|
|
|
$
|
0.18
|
|
Granted – non-plan options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/cancelled
|
|
|
(3,000,000
|
)
|
|
|
$0.08
|
|
|
|
0.08
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding December 31, 2017
|
|
|
380,950
|
|
|
|
$0.51 to $13.50
|
|
|
$
|
0.90
|
|
Granted - non-plan options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/cancelled
|
|
|
(228,196
|
)
|
|
|
$0.51 to $0.63
|
|
|
|
0.53
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding September 30, 2018
|
|
|
152,754
|
|
|
|
$0.51 to $13.50
|
|
|
$
|
1.45
|
|
Stock options outstanding as
of September 30, 2018 and December 31, 2017 as disclosed in the above table, have an intrinsic value of $0 and $0, respectively.
PLEDGE PETROLEUM CORP.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
6
|
STOCKHOLDERS’ EQUITY (continued)
|
|
c)
|
Stock
Options (continued)
|
The options outstanding and exercisable at September
30, 2018 are as follows:
|
|
|
|
Options outstanding
|
|
|
Options exercisable
|
|
Exercise price
|
|
|
|
No. of shares
|
|
|
|
Weighted
average
remaining
years
|
|
|
|
Weighted
average exercise
price
|
|
|
|
No. of shares
|
|
|
|
Weighted
average exercise
price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13.50
|
|
|
|
3,480
|
|
|
|
0.71
|
|
|
|
|
|
|
|
3,480
|
|
|
|
|
|
$
|
12.50
|
|
|
|
2,000
|
|
|
|
2.03
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
$
|
8.50
|
|
|
|
500
|
|
|
|
2.75
|
|
|
|
|
|
|
|
500
|
|
|
|
|
|
$
|
5.00
|
|
|
|
14,800
|
|
|
|
3.04
|
|
|
|
|
|
|
|
14,800
|
|
|
|
|
|
$
|
0.65
|
|
|
|
36,924
|
|
|
|
4.50
|
|
|
|
|
|
|
|
36,924
|
|
|
|
|
|
$
|
0.51
|
|
|
|
95,050
|
|
|
|
4.87
|
|
|
|
|
|
|
|
95,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152,754
|
|
|
|
4.47
|
|
|
|
1.45
|
|
|
|
152,754
|
|
|
|
1.45
|
|
The Company has recorded an
expense of $0 and $18,066 for the nine months ended September 30, 2018 and 2017, respectively relating to options issued.
The warrants outstanding and exercisable at September
30, 2018 are as follows:
|
|
|
|
Warrants outstanding
|
|
|
Warrants exercisable
|
|
Exercise price
|
|
|
|
No. of shares
|
|
|
|
Weighted
average
remaining
years
|
|
|
|
Weighted
average exercise
price
|
|
|
|
No. of shares
|
|
|
|
Weighted
average exercise
price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.30
|
|
|
|
375,000
|
|
|
|
0.08
|
|
|
|
|
|
|
|
375,000
|
|
|
|
|
|
$
|
0.25
|
|
|
|
1,751,667
|
|
|
|
0.74
|
|
|
|
|
|
|
|
1,751,667
|
|
|
|
|
|
$
|
0.15
|
|
|
|
525,500
|
|
|
|
0.74
|
|
|
|
|
|
|
|
525,500
|
|
|
|
|
|
$
|
0.25
|
|
|
|
1,508,333
|
|
|
|
0.84
|
|
|
|
|
|
|
|
1,508,333
|
|
|
|
|
|
$
|
0.15
|
|
|
|
577,499
|
|
|
|
0.85
|
|
|
|
|
|
|
|
577,499
|
|
|
|
|
|
$
|
0.25
|
|
|
|
968,166
|
|
|
|
0.85
|
|
|
|
|
|
|
|
968,166
|
|
|
|
|
|
$
|
0.25
|
|
|
|
633,333
|
|
|
|
0.90
|
|
|
|
|
|
|
|
633,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,339,498
|
|
|
|
0.77
|
|
|
|
0.24
|
|
|
|
6,339,498
|
|
|
|
0.24
|
|
The warrants outstanding have an intrinsic value
of $0 and $0 as of September 30, 2018 and December 31, 2017, respectively.
PLEDGE PETROLEUM CORP.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Basic loss per share is based
on the weighted-average number of common shares outstanding during each period. Diluted loss per share is based on basic shares
as determined above plus common stock equivalents, including convertible preferred shares and convertible notes as well as the
incremental shares that would be issued upon the assumed exercise of in-the-money stock options using the treasury stock method.
The computation of diluted net loss per share does not assume the issuance of common shares that have an anti-dilutive effect on
net loss per share. For the three months and nine months ended September 30, 2018 and 2017, all stock options, unvested restricted
stock awards, warrants, convertible preferred stock and convertible notes were excluded from the computation of diluted net loss
per share. Dilutive shares which could exist pursuant to the exercise of outstanding stock instruments and which were not included
in the calculation because their affect would have been anti-dilutive are as follows:
|
|
Three and nine
months
ended
September 30,
2018
|
|
|
Three and nine
months
ended
September 30,
2017
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
152,754
|
|
|
|
380,950
|
|
Warrants to purchase shares of common stock
|
|
|
6,339,498
|
|
|
|
6,339,498
|
|
Series A-1 convertible preferred shares
|
|
|
-
|
|
|
|
31,375,000
|
|
Series B convertible preferred shares
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
Series C convertible preferred shares
|
|
|
-
|
|
|
|
120,000,000
|
|
Restricted common stock
|
|
|
20,000,000
|
|
|
|
-
|
|
|
|
|
30,492,252
|
|
|
|
162,095,448
|
|
|
8
|
RELATED PARTY TRANSACTIONS
|
On May 2, 2018, the Company issued
to each of its three directors, 10,000,000 shares of restricted common stock, vesting as to 1/3 of the grant immediately, 1/3 of
the grant on the one year anniversary of the grant date and 1/3 of the grant on the two year anniversary of the grant date.
|
9
|
COMMITMENTS AND CONTINGENCIES
|
The Company disposed of its Crystal
Magic, Inc. subsidiary effective December 31, 2013. In terms of the sale agreement entered into by the Company, the purchaser has
been indemnified against all liabilities whether contingent or otherwise, claimed by third parties, this includes claims by creditors
of the Company amounting to $372,090 and claims against long-term liabilities of $848,916. Management does not consider it likely
that these claims will materialize and accordingly no provision has been made for these contingent liabilities.
PLEDGE PETROLEUM CORP.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
In accordance with ASC 855-10,
the Company has analyzed its operations subsequent to September 30, 2018 to the date these financial statements were issued, and
has determined that it does not have any material subsequent events to disclose in these financial statements.