(The accompanying notes are an integral part of these condensed consolidated financial statements)
Notes to the Condensed Consolidated Financial Statements
(Expressed in US dollars)
(unaudited)
1.Nature of Operations and Continuance of Business2
Verde Bio Holdings Inc. (the “Company”) was incorporated in the State of Nevada on February 24, 2010. Currently, the Company is in the business of oil and gas exploration and investment.
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. This contagious disease outbreak and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, leading to an economic downturn. The impact on the Company has not been significant but management continues to monitor the situation.
Going Concern
These consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. During the period ended October 31, 2021, the Company incurred a net loss of $2,279,643 and used cash of $842,527 for operating activities. As at October 31, 2021, the Company had an accumulated deficit of $13,116,388. The continuation of the Company as a going concern is dependent upon the continued financial support from its management, and its ability to identify future investment opportunities and obtain the necessary debt or equity financing and generating profitable operations from the Company’s future operations. The Company will continue to rely on equity sales of its common shares in order to continue to fund business operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year from the date these financial statements are issued. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
2.Summary of Significant Accounting Policies
(a)Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated interim financial statements of the Company should be read in conjunction with the consolidated interim financial statements and accompany notes filed with the U.S. Securities and Exchange Commission for the year ended April 30, 2021. These interim condensed consolidated interim financial statements are unaudited and have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period.
These condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and are expressed in U.S. dollars. The condensed consolidated interim financial statements are comprised of the records of the Company and its wholly owned subsidiary, IP Control Risk Inc., a company incorporated in the State of Nevada, United States. All intercompany transactions have been eliminated on consolidation. The Company’s fiscal year end is April 30.
(b)Use of Estimates
The preparation of financial statements in conformity with US GAAP 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.
2 To be updated
F-7
VERDE BIO HOLDINGS INC.
Notes to the Condensed Consolidated Financial Statements
(Expressed in US dollars)
(unaudited)
2.Summary of Significant Accounting Policies (continued)
(b)Use of Estimates (continued)
The Company regularly evaluates estimates and assumptions related to the collectability of accounts receivable relating to oil and gas interests which is based on the operator’s production statements, carrying value of oil and gas properties, the useful life, carrying value, and incremental borrowing rate used for right-of-use assets and lease liabilities, the fair value of convertible debentures, derivative liabilities, stock-based compensation, revenue recognition including the calculation of the reserves and the fair value of the reserves for oil and gas interests, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
(c)Basic and Diluted Net Loss per Share
The Company computes net loss per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of October 31, 2021, the Company had 5,000 (April 30, 2021 –7,718,600) potentially dilutive common shares outstanding.
(d) Fair Value Measurements
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by U.S. generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:
Level 1 – quoted prices for identical instruments in active markets;
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Financial instruments consist principally of cash, accounts payable and accrued liabilities, notes payable, convertible debentures and amounts due to related parties. The fair value of cash is determined based on Level 1 inputs. There were no transfers into or out of “Level 3” during the periods ended October 31, 2021, and 2020. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
F-8
VERDE BIO HOLDINGS INC.
Notes to the Condensed Consolidated Financial Statements
(Expressed in US dollars)
(unaudited)
2.Summary of Significant Accounting Policies (continued)
(d) Fair Value Measurements (continued)
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
(j)Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
3.Right-of-Use Operating Lease Asset and Lease Liability
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the ROU asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the ROU asset result in straight-line rent expense over the lease term. ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term.
On March 11, 2021, the Company entered into a sublease agreement with a sublandlord regarding its office at 5750 Genesis Court, Suite 220, Frisco, Texas 75036. The agreement was treated as an operating lease in accordance with ASC 842, Lease, which resulted in initial recognition of right-of-use asset and lease liability of $122,120. The incremental borrowing rate used in the calculation is 18%.
|
October 31,
2021
|
April 30,
2021
|
|
$
|
$
|
|
|
|
Components of lease expense were as follows:
|
|
|
|
|
|
Operating lease cost
|
20,515
|
6,642
|
|
|
|
Supplemental cash flow information related to leases:
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
Operating cash flows from operating leases
|
33,215
|
-
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
|
|
Operating leases
|
-
|
122,120
|
Supplemental balance sheet information related to leases:
|
|
|
|
|
|
Operating Leases
|
|
|
|
|
|
Operating lease right-of-use assets
|
94,963
|
115,478
|
|
|
|
Operating lease liabilities
|
103,081
|
125,811
|
F-9
VERDE BIO HOLDINGS INC.
Notes to the Condensed Consolidated Financial Statements
(Expressed in US dollars)
(unaudited)
3.Right-of-Use Asset and Lease Liability (continued)
|
October 31,
2021
|
April 30,
2021
|
|
|
|
Weighted Average Remaining Lease Term
|
|
|
|
|
|
Operating leases
|
1.91 years
|
2.41 years
|
|
|
|
Weighted Average Discount Rate
|
|
|
|
|
|
Operating leases
|
18%
|
18%
|
|
|
|
Maturities of lease liabilities are as follows:
|
|
|
Year Ending April 30,
|
Operating
Leases
|
Operating
Leases
|
|
|
|
2022
|
33,215
|
66,430
|
2023
|
66,430
|
66,430
|
2024
|
22,143
|
22,143
|
|
|
|
Total lease payments
|
121,788
|
155,003
|
Less: imputed interest
|
(18,707)
|
(29,192)
|
|
|
|
Total
|
103,081
|
125,811
|
4.Royalty Interests in Oil and Gas Properties
|
October 31,
2021
$
|
April 30,
2021
$
|
|
|
|
Opening balance
|
895,487
|
-
|
|
|
|
Acquisition costs
|
2,331,425
|
2,867,042
|
Registration costs
|
-
|
6,440
|
Depletion expense
|
(107,312)
|
(50,185)
|
Impairment
|
(1,266,046)
|
(1,927,810)
|
|
|
|
Closing balance
|
1,853,554
|
895,487
|
On July 19, 2020, the Company signed a purchase agreement for a 50% right, title and interest to certain oil and gas properties located in the United States in exchange for 10,000,000 shares of common stock of the Company with fair value of $245,000 which was determined based on the fair value of the Company’s common shares on the date of issuance on August 10, 2020.
On September 21, 2020, the Company signed a purchase agreement for a 100% right, title and interest to certain oil and gas properties located in the United States for consideration of 5,000,000 shares of common stock of the Company with a fair value of $126,500.
On March 5, 2021, the Company signed a purchase and sale agreement for 100% right, title and interest to certain oil and gas properties located in Adams County, Colorado for cash consideration of $150,000.
On March 16, 2021, the Company signed a purchase and sale agreement for 50% right, title and interest to certain oil and gas properties located in Weld County, Colorado for cash consideration of $152,000.
On March 18, 2021, the Company signed a purchase and sale agreement for 100% right, title and interest to certain oil and gas properties located in Desoto and Sabine Parish, LA and Loving County, Texas for cash consideration of $127,500.
On March 18, 2021, the Company signed a purchase and sale agreement for 100% right, title and interest to certain oil and gas properties located in Adams County, Colorado for cash consideration of $150,000.
F-10
VERDE BIO HOLDINGS INC.
Notes to the Condensed Consolidated Financial Statements
(Expressed in US dollars)
(unaudited)
4.Royalty Interests in Oil and Gas Properties (continued)
On March 22, 2021, the Company signed a purchase and sale agreement for 100% right, title and interest to certain oil and gas properties located in Weld County, Colorado for cash consideration of $152,000.
On March 26, 2021, the Company signed a purchase and sale agreement for 100% right, title and interest to certain oil and gas properties located in Red River and Sabine Parish, LA for cash consideration of $380,952.
On April 1, 2021, the Company signed a purchase and sale agreement for 100% right, title and interest to certain oil and gas properties located in Red River and Desoto Parish, LA for cash consideration of $359,975.
On April 1, 2021, the Company signed a purchase and sale agreement for 100% right, title and interest to certain oil and gas properties located in Ohio County, West Virginia for cash consideration of $133,000.
On April 13, 2021, the Company signed a purchase and sale agreement for 100% right, title and interest to certain oil and gas properties located in Laramie County, Wyoming for cash consideration of $502,764.
On April 19, 2021, the Company signed a purchase and sale agreement for 100% right, title and interest to certain oil and gas properties located in Howard County, Texas for cash consideration of $430,000.
On May 4, 2021, the Company signed a purchase and sale agreement for 100% right, title, and interest to certain properties located in Laramie County, Wyoming for cash consideration of $431,245.
On May 13, 2021, the Company signed a purchase and sale agreement for 100% right, title, and interest to certain properties located in Colorado and Ohio for cash consideration of $1,100,000.
On July 16, 2021, the Company signed a purchase and sale agreement for 100% right, title, and interest to certain properties located in Bienville, Louisiana for cash consideration of $800,000.
During the period ended October 31, 2021, the Company recorded an impairment loss of $1,266,046 on its producing oil and gas properties due to an excess of carrying value above expected future cash flows to be generated from its producing oil and gas properties.
5.Property and Equipment
|
|
Land
$
|
Vehicles
$
|
Total
$
|
|
|
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
Balance, April 30, 2021
|
|
-
|
-
|
-
|
|
|
|
|
|
Additions
|
|
2,485,924
|
125,595
|
2,611,519
|
|
|
|
|
|
Balance, October 31, 2021
|
|
2,485,924
|
125,595
|
2,611,519
|
|
|
|
|
|
Accumulated depreciation
|
|
|
|
|
|
|
|
|
|
Balance, April 30, 2021 and October 31, 2021
|
|
–
|
–
|
–
|
|
|
|
|
|
Balance, April 30, 2021
|
|
-
|
-
|
-
|
|
|
|
|
|
Balance, October 31, 2021
|
|
2,485,924
|
125,595
|
2,611,519
|
As at October 31, 2021, the vehicles have an estimated useful live of 5 years and have not been placed into use. Amortization will commence once the vehicles are available for use.
6.Related Party Transactions
(a)During the period ended July 31, 2021, the Company incurred $nil (2020 - $204,000) in management fees to the President and Director of the Company which was paid in common shares (see Note 11).
F-11
VERDE BIO HOLDINGS INC.
Notes to the Condensed Consolidated Financial Statements
(Expressed in US dollars)
(unaudited)
7.Derivative Liability
The fair value of the derivative liability was calculated using a Binomial model. The fair value of the derivative liability is revalued on each balance sheet date with corresponding gains and losses recorded in the consolidated statement of operations. As at October 31, 2021, the Company recorded a derivative liability of $nil (April 30, 2021 - $8,519).
A summary of the activity of the derivative liability is shown below:
|
|
|
|
|
$
|
|
|
|
|
|
|
Balance, April 30, 2021
|
|
|
|
|
8,519
|
Adjustment for conversion
|
|
|
|
|
(8,519)
|
|
|
|
|
|
|
Balance, October 31, 2021
|
|
|
|
|
-
|
8.Convertible Preferred Series B Stock Liability
On June 13, 2019, the Company designated 1,000,000 shares of preferred stock as Series B. The holders of Series B preferred shares are not entitled to receive dividends except as may be declared by the Board at its sole and absolute discretion. Each Series B preferred share is convertible into common shares according to the following formula: the Stated Value of $1.10 per share of Series B preferred stock divided by the closing price of the Common Stock on the day prior to the conversion. Holders of Series B preferred stock shall not have voting rights.
On June 17, 2019, the Company issued 530,000 shares of Series B preferred stock at a fair value of $583,000 based on the stated value of $1.10 per share, in exchange for the settlement of accounts payable of $266,523, notes payable of $990, accrued interest of $535, and management fees of $33,000. As the Series B shares represent an unconditional obligation that the Company must or may settle in a variable number of its equity shares and the monetary value of the obligation is predominantly based on a fixed monetary amount, the 530,000 shares with a balance of $583,000 is recorded as a liability on the balance sheet. During the year ended April 30, 2021, the Company issued 21,441,440 shares of common stock for the conversion of 334,600 shares of Series B preferred stock. During the period ended October 31, 2021, the Company issued 15,030,769 common shares for the conversion of 195,400 Series B preferred stock. As of July 31, 2021, the carrying value of nil Convertible Preferred Series B Stock was $nil (April 30, 2021 - $214,948). As of October 31, 2021 there was zero Convertible Preferred Series B Stock outstanding (April 30, 2021 – 195,400).
9.Common Shares
Authorized: 5,000,000,000 common shares with a par value of $0.001 per share.
During the three months ended July 31, 2021, the Company issued 451,550,000 common shares at $0.01 per common share for proceeds of $4,545,500, of which $595,000 was received as at April 30, 2021. As part of the financing, the Company paid share issuance costs of $33,165 which is recorded as a charge against additional paid-in capital.
On May 4, 4021, the Company issued 3,000,000 common shares with a fair value of $45,300 for consulting services.
On May 13, 2021, the Company issued 15,030,769 common shares pursuant to the conversion of 195,400 shares of Series B convertible preferred stock. Refer to Note 8.
On May 14, 2021, the Company issued 100,000 common shares with a fair value of $1,330 for consulting services.
On May 17, 2021, the Company issued 1,000,000 common shares with a fair value of $10,000 for settlement of accounts payable.
On June 21, 2021, the Company issued 100,000 common shares with a fair value of $1,400 for consulting services.
On July 15, 2021, the Company issued 100,000 common shares with a fair value of $1,080 for consulting services.
On July 22, 2021, the Company issued 3,000,000 common shares with a fair value of $30,000 for settlement of accounts payable.
On August 3, 2021, the Company issued 1,000,000 common shares with a fair value of $10,300 for consulting services.
On August 16, 2021, the Company issued 100,000 common shares with a fair value of $1,020 for consulting services.
On September 20, 2021, the Company issued 100,000 common shares with a fair value of $1,470 for consulting services.
F-12
VERDE BIO HOLDINGS INC.
Notes to the Condensed Consolidated Financial Statements
(Expressed in US dollars)
(unaudited)
On October 15, 2021, the Company issued 100,000 common shares with a fair value of $1,940 for consulting services.
10.Preferred Shares
Authorized: 10,000,000 preferred shares with a par value of $0.001 per share
Convertible Preferred Series A stock
On April 18, 2017, the Company designated 500,000 shares of preferred stock as Series A. The holders of Series A preferred shares are entitled to receive dividends equal to the amount of the dividend or distribution per share of common stock payable multiplied by the number of shares of common stock the shares of Series A preferred shares held by such holder are convertible into. Each Series A preferred shares is convertible into one common share. Each holder of Series A preferred shares is entitled to cast 10,000 votes for every one Series A preferred share held.
Convertible Preferred Series B stock – see Note 8.
Convertible Preferred Series C stock- See Note 12.
11. Commitments and Contingencies
On May 28, 2020, the Company and an unrelated party entered into equity financing agreement, whereby the investor shall invest up to $5,000,000 over the period of 36 months pursuant to a “put” option held by the Company, subject to certain limitations. The price of the common shares shall be equal to 80% of the lowest traded price during the last 10 trading days leading up to each put notice, subject to a floor of $0.001 per share. As part of the agreement, the Company issued a convertible promissory note to the unrelated party to offset transaction costs of $20,000, which was deemed as earned upon the execution of the agreement. The note was convertible into common stock of the Company at a fixed price of $0.01, which equals the lowest traded price for the common stock on the trading day preceding the execution of the note. During the year ended April 30, 2021, the convertible promissory note was repaid. As of October 31, 2021, no common shares have been sold pursuant to the equity financing agreement.
12. Subsequent Events
(a)On November 15, 2021, the Company issued 100,000 common shares to a non-related party for consulting services.
(b)On November 16, 2021, the Company acquired 100% right, title, and interest to certain properties located in Belmont County, Ohio for cash consideration of $175,000.
(c)On December 6, 2021, the Company authorized the issuance of up to 10,000,000 shares of Series C Preferred Stock (“Series C”), with a par value of $0.001 per share.
(d)On December 8, 2021, the Company issued 1,000 shares of Series C stock at $1,000 per share for proceeds of $1,000,000., Each Series C stock earns accrued dividends of 10% per annum, payable quarterly, and is convertible into common shares of the Company at the lower of: (i) the closing bid price on the trading day preceding the execution of the definition agreement; or (ii) the lowest volume weighted average price of the Company’s common stock on the fifteen trading days prior to the notice of conversion. The Company has the option to redeem the Series C stock based on the following schedule: (i0 at a rate of 115% of the purchase price within the first 90 calendar days from issuance; (ii) at a rate of 120% of the purchase price between 91-120 calendar days from issuance; and (iii) at a rate of 125% of the purchase price between 121-180 calendar days from issuance.
F-13
Cash Flows
|
October 31, 2021
|
|
October 31, 2020
|
$
|
$
|
|
(unaudited)
|
|
(unaudited)
|
Cash Flows used in Operating Activities
|
(842,527)
|
|
(141,821)
|
Cash Flows from (used in) Investing Activities
|
(4,942,944)
|
|
(3,730)
|
Cash Flows from Financing Activities
|
3,882,335
|
|
144,167
|
Net increase (decrease) in Cash During Period
|
(1,903,136)
|
|
(1,384)
|
Operating Revenues
During the three and six months ended October 31, 2021, the Company earned royalty revenues of $143,413 and $208,012, respectively, relating to its interests in various oil and gas properties compared to $nil during the three and six months ended October 31, 2020 as the Company did not invest in any oil and gas properties in the same period in the prior year.
Operating Expenses and Net Loss
Three Months Ended October 31, 2021 and 2020
During the three months ended October 31, 2021, the Company incurred operating expenses of $1,750,061 compared to operating expenses of $97,653 during the three months ended October 31, 2020. The increase in operating expenses was due to an increase in operating activity during the period as the Company has invested in significant oil and gas properties and commenced earning royalty revenues during the current fiscal period compared to minimal operations in the prior year. Specific expenditures relating to oil and gas properties and production included $85,323 of depletion expense relating to the cost of the proportionate amount of reserves and probable reserves that were extracted to generate revenue during the current period, $89,158 of project expenditures relating to maintenance and overhead expenditures incurred on the producing oil and gas properties that do not meet the definition of capitalization under US GAAP, as well as a one-time impairment loss of $1,266,046 for the excess of the carrying value of the producing oil and gas properties above the fair value of the proven and probable reserves of its oil and gas properties due to a decline in the fair value of oil prices during the
4
period. In addition to the specific oil and gas costs, the Company incurred overhead costs of $237,664 of general and administrative expense in the current period compared to $34,952 in the prior year and $46,530 of consulting expenses in the current period compared to $nil in the prior year, which was due to an overall increase in operating activity in the current year, as the Company did not acquire any oil and gas properties or had any royalty income in the prior year and thus, had limited operating activity.
Net loss for the three months ended October 31, 2021 was $1,606,648 compared to net income of $300,946 during the three months ended October 31, 2020. In addition to operating expenses incurred, during the three months ended October 31, 2020, the Company recorded a gain of $498,409 relating to the change in the fair value of the derivative liability relating to its convertible debentures which was offset by interest expense of $78,611 and loss on extinguishment of convertible debt of $21,199. The Company had no other income or expense items for the three months ended October 31, 2021 as the Company repaid or settled its convertible debentures and is no longer impacted by the fair value adjustments relating to the conversion features in outstanding debt instruments.
For the three months ended October 31, 2021, the Company recorded a basic and diluted loss per share of $0.00 as compared with a basic and diluted net income per share of $0.01 per share for the three months ended October 31, 2020.
Six Months Ended October 31, 2021 and 2020
During the six months ended October 31, 2021, the Company incurred operating expenses of $2,492,010 compared to operating expenses of $439,215 during the six months ended October 31, 2020. The increase in operating expenses was due to an increase in operating activity during the period as the Company has invested in significant oil and gas properties and commenced earning royalty revenues during the current fiscal period compared to minimal operations in the prior year. Specific expenditures relating to oil and gas properties and production included $107,312 of depletion expense relating to the cost of the proportionate amount of reserves and probable reserves that were extracted to generate revenue during the current period, $187,292 of project expenditures relating to maintenance and overhead expenditures incurred on the producing oil and gas properties that do not meet the definition of capitalization under US GAAP, as well as a one-time impairment loss of $1,266,046 for the excess of the carrying value of the producing oil and gas properties above the fair value of the proven and probable reserves of its oil and gas properties due to a decline in the fair value of oil prices during the period. In addition to the specific oil and gas costs, the Company incurred overhead costs of $673,688 of general and administrative expense in the current period compared to $97,044 in the prior year, $102,757 of professional fees in the current period compared to $97,371 in the prior year, and $154,915 of consulting expenses in the current period compared to $40,800 in the prior year, which was due to an overall increase in operating activity in the current year, as the Company did not acquire any oil and gas properties or had any royalty income in the prior year and thus, had limited operating activity.
Net loss for the six months ended October 31, 2021 was $2,279,643 compared to net loss of $609,601 during the six months ended October 31, 2020. In addition to operating expenses incurred, during the six months ended October 31, 2020, the Company recorded a gain of $27,143 relating to the change in the fair value of the derivative liability relating to its convertible debentures which was offset by interest expense of $175,328 and loss on extinguishment of convertible debt of $22,201. The Company had minimal other income of $4,355 during the six months ended October 31, 2021 as the Company repaid or settled its convertible debentures and is no longer impacted by the fair value adjustments relating to the conversion features in outstanding debt instruments.
For the six months ended October 31, 2021, the Company recorded a basic and diluted loss per share of $0.00 as compared with a basic and diluted net loss per share of $0.02 for the six months ended October 31, 2020.
Liquidity and Capital Resources
As at October 31, 2021, the Company had cash of $184,761 and total assets of $4,887,932 compared to cash of $2,087,897 and total assets of $3,217,998 as at April 30, 2021. The increase in total assets was due to the purchase of an additional $2,331,425 of oil and gas property interests less $1,266,046 impairment loss and $107,372 of depletion expense and $2,611,519 of property and equipment and the decrease in cash was due to the fact that the oil and gas acquisitions were primarily paid by cash based on the Company’s existing holdings and new financing of common shares in a Regulation A filing for $0.01 per share.
The Company had total liabilities of $305,704 as at October 31, 2021 compared to $562,242 as at April 30, 2021. The decrease in liabilities is due to the conversion of $214,940 of its convertible preferred Series B shares in exchange for 15,030,769 common shares. As at October 31, 2021, the Company no longer has any outstanding convertible preferred Series B shares. The Company also repaid its remaining convertible debentures of $1,203 which also resulted in the decrease in derivative liability of $8,519 as the Company no longer has any convertible debentures or any fair value related to any beneficial conversion of debt to common shares.
As of October 31, 2021, the Company had working capital of $73,244 compared to working capital of $1,723,019 at April 30, 2021. The decrease in working capital was due to the use of cash to acquire additional oil and gas properties offset by additional proceeds received from issuance of common shares during the current period.
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Cash Flow from Operating Activities
During the six months ended October 31, 2021, the Company used $842,527 of cash for operating activities compared with $141,821 for operating activities during the six months ended October 31, 2020. The increase in the use of cash for operating activities was due to an overall increase in general operations as the Company purchased oil and gas properties and earned royalty revenue during the current period compared to minimal operations during the prior year.
Cash Flow from Investing Activities
During the six months ended October 31, 2021, the Company used $4,942,944 of cash for investing activities including $2,331,425 for purchases of oil and gas properties and $2,611,519 for the purchase of equipment and land. The Company incurred $3,730 for the acquisition of oil and gas properties during the six months ended October 31, 2020.
Cash Flow from Financing Activities
During the six months ended October 31, 2021, the Company raised $3,882,335 of cash from financing activities, including $3,920,500 from the issuance of common shares less repayment of $5,000 to repay the outstanding balance of a convertible debenture and $33,165 of share issuance costs. During the six months ended October 31, 2020, the Company raised $144,167 of cash from financing activities which included $50,000 from the issuance of common shares and share subscriptions as well as $22,917 of loans payable related to the SBA paycheck protection program, $30,000 from the issuance of convertible debentures, and $41,250 from advances.
Going Concern
We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions and activities. During the period ended October 31, 2021, the Company incurred a net loss of $2,279,643 and used cash of $842,527 for operating activities. At October 31, 2021, the Company has an accumulated deficit of $13,116,388. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The unaudited financial statements included in this report on Form 10-Q does not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Future Financings
We will continue to rely on equity sales of our Common Shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and exploration activities.
Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
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Recently Issued Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.