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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
☒
Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
For
the quarterly period ended June 30, 2022
☐
Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
For
the transition period from __________ to __________
Commission
File Number: 000-52690
PETROLIA
ENERGY CORPORATION
(Exact
name of registrant as specified in its charter)
Texas |
|
86-1061005 |
(State
or other jurisdiction of
incorporation
or organization) |
|
(I.R.S.
Employer
Identification
No.) |
710
N. Post Oak Road, Suite 400
Houston,
Texas |
|
77024 |
(Address
of principal executive offices) |
|
(Zip
Code) |
(832-723-1266)
(Issuer’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act: None.
Indicate
by check mark whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the past 12 months (or for such shorter period that the issuer was required to file such reports); and (2) has been subject
to such filing requirements for the past 90 days. Yes ☐ No ☒
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☐ No ☒
Indicate
by check mark whether the registrant is large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company,
or an emerging growth company. See definition of “large accelerated filer,” accelerated filer” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large
accelerated filer ☐ |
Accelerated
filer ☐ |
|
|
Non-accelerated
filer ☒ |
Smaller
Reporting Company ☒ |
|
|
Emerging
growth company ☐ |
|
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
State
the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 176,988,322
shares of common stock as of March 2, 2023.
TABLE
OF CONTENTS
PART
I: Financial Information
Item
1. Consolidated Financial Statements
PETROLIA
ENERGY CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
| |
June 30, 2022 | | |
December 31, 2021 | |
| |
(unaudited) | | |
(audited) | |
ASSETS | |
| | | |
| | |
Current assets | |
| | | |
| | |
Cash | |
$ | 1,054,109 | | |
$ | 14,058 | |
Accounts receivable | |
| 338 | | |
| 5,942 | |
Other current assets | |
| 6,397 | | |
| 5,641 | |
Total current assets | |
| 1,060,844 | | |
| 25,641 | |
| |
| | | |
| | |
Property & equipment | |
| | | |
| | |
Oil and gas, on the basis of full cost accounting | |
| | | |
| | |
Evaluated properties | |
| 6,756,794 | | |
| 6,797,025 | |
Furniture, equipment & software | |
| 155,293 | | |
| 155,293 | |
Less accumulated depreciation and depletion | |
| (708,580 | ) | |
| (603,135 | ) |
Net property and equipment | |
| 6,203,507 | | |
| 6,349,183 | |
| |
| | | |
| | |
Other assets | |
| | | |
| | |
Operating lease right-of-use asset | |
| 7,454 | | |
| 12,821 | |
Other assets | |
| 1,386,980 | | |
| 1,450,841 | |
| |
| | | |
| | |
Total Assets | |
$ | 8,658,785 | | |
$ | 7,838,486 | |
| |
| | | |
| | |
LIABILITIES & STOCKHOLDERS DEFICIT | |
| | | |
| | |
| |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable | |
$ | 1,732,868 | | |
$ | 320,088 | |
Accounts payable – related parties | |
| 5,478 | | |
| 57,363 | |
Operating lease liability – current | |
| 7,998 | | |
| 13,909 | |
Accrued liabilities | |
| 1,420,609 | | |
| 1,149,012 | |
Accrued liabilities – related parties | |
| 868,662 | | |
| 862,158 | |
Notes payable, current portion | |
| 3,328,364 | | |
| 3,438,162 | |
Notes payable – related parties, current portion | |
| 774,560 | | |
| 779,373 | |
Total current liabilities | |
| 8,138,539 | | |
| 6,620,065 | |
| |
| | | |
| | |
Asset retirement obligations | |
| 2,322,812 | | |
| 2,257,027 | |
Derivative liability | |
| 5,215 | | |
| 22,554 | |
Total Liabilities | |
$ | 10,466,566 | | |
$ | 8,899,646 | |
| |
| | | |
| | |
Stockholders’ Deficit | |
| | | |
| | |
Preferred stock, $0.001 par value, 1,000,000 shares authorized; 199,100 shares issued and outstanding | |
$ | 199 | | |
$ | 199 | |
Preferred Series B stock, no par value; 3 shares authorized; 3 and 0 shares issued and outstanding | |
| 152,397 | | |
| 152,397 | |
Preferred Series C stock, $0.10 par value, 11,000 shares authorized, 11,000 and 8,500 shares issued and outstanding | |
| 1,100 | | |
| 850 | |
Preferred stock, value | |
| 1,100 | | |
| 850 | |
Common stock, $0.001 par value; 400,000,000 shares authorized; 176,988,322 and 176,988,322 shares issued and outstanding | |
| 176,988 | | |
| 176,988 | |
Additional paid in capital | |
| 60,242,888 | | |
| 60,216,722 | |
Accumulated other comprehensive income | |
| (302,057 | ) | |
| (269,155 | ) |
Accumulated deficit | |
| (62,079,296 | ) | |
| (61,339,161 | ) |
Total Stockholders’ Deficit | |
| (1,807,781 | ) | |
| (1,061,160 | ) |
Total Liabilities and Stockholders’ Deficit | |
$ | 8,658,785 | | |
$ | 7,838,486 | |
The
accompanying notes are an integral part of these condensed consolidated interim financial statements.
PETROLIA
ENERGY CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| |
Three
months ended June 30, 2022 | | |
Three
months ended June 30, 2021 | | |
Six
months ended June 30, 2022 | | |
Six
months ended June 30, 2021 | |
Oil and gas sales | |
| | | |
| | | |
| | | |
| | |
Oil and gas sales | |
$ | 1,137,890 | | |
$ | 1,248,359 | | |
$ | 2,974,250 | | |
$ | 2,330,607 | |
Total Revenue | |
| 1,137,890 | | |
| 1,248,359 | | |
| 2,974,250 | | |
| 2,330,607 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Lease operating expense | |
| 1,622,399 | | |
| 1,613,076 | | |
| 2,898,236 | | |
| 2,148,469 | |
Production tax | |
| — | | |
| — | | |
| 438 | | |
| 1,163 | |
General and administrative expenses | |
| 149,757 | | |
| 190,942 | | |
| 297,603 | | |
| 521,956 | |
Depreciation, depletion and amortization | |
| 60,682 | | |
| 253,285 | | |
| 113,198 | | |
| 436,424 | |
Asset retirement obligation accretion | |
| 43,420 | | |
| 93,518 | | |
| 85,898 | | |
| 181,724 | |
Total operating expenses | |
| 1,876,258 | | |
| 2,150,821 | | |
| 3,395,373 | | |
| 3,289,736 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (738,368 | ) | |
| (902,462 | ) | |
| (421,123 | ) | |
| (959,129 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income (expenses) | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (123,080 | ) | |
| (171,902 | ) | |
| (248,017 | ) | |
| (329,950 | ) |
Other income (expense) | |
| — | | |
| — | | |
| 5,521 | | |
| — | |
Change in fair value of derivative liabilities | |
| (146 | ) | |
| 83,111 | | |
| 17,339 | | |
| (104,605 | ) |
Total other income (expenses) | |
| (123,226 | ) | |
| (88,791 | ) | |
| (225,157 | ) | |
| (434,555 | ) |
| |
| | | |
| | | |
| | | |
| | |
Series A Preferred Dividends | |
| (44,798 | ) | |
| (44,893 | ) | |
| (89,595 | ) | |
| (89,568 | ) |
Series C Preferred Dividends | |
| (2,194 | ) | |
| — | | |
| (4,260 | ) | |
| — | |
| |
| | | |
| | | |
| | | |
| | |
Net Loss Attributable to Common Stockholders | |
| (908,586 | ) | |
| (1,036,146 | ) | |
| (740,135 | ) | |
| (1,483,252 | ) |
| |
| | | |
| | | |
| | | |
| | |
Loss per share | |
| | | |
| | | |
| | | |
| | |
(Basic and fully diluted) | |
$ | (0.01 | ) | |
$ | (0.01 | ) | |
$ | (0.00 | ) | |
$ | (0.01 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of common shares outstanding, basic & diluted | |
| 176,988,322 | | |
| 176,988,322 | | |
| 176,988,322 | | |
| 173,854,195 | |
| |
| | | |
| | | |
| | | |
| | |
Other comprehensive income, net of tax | |
| | | |
| | | |
| | | |
| | |
Foreign currency translation adjustments | |
| (62,759 | ) | |
| (39,732 | ) | |
| (32,902 | ) | |
| (37,405 | ) |
Comprehensive income (loss) | |
$ | (971,345 | ) | |
$ | (1,075,878 | ) | |
$ | (773,037 | ) | |
$ | (1,520,657 | ) |
The
accompanying notes are an integral part of these condensed consolidated interim financial statements.
PETROLIA
ENERGY CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(Unaudited)
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
Preferred
stock Series A | | |
Preferred
stock Series B | | |
Preferred
stock Series C | | |
Common
stock | | |
Additional paid-in | | |
Shares to
be | | |
Accumulated
Other Comprehensive | | |
Accumulated | | |
Stockholders’ equity | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
capital | | |
Issued | | |
income | | |
deficit | | |
(deficit) | |
Balance
at December 31, 2020 | |
| 199,100 | | |
$ | 199 | | |
| — | | |
$ | — | | |
| — | | |
$ | — | | |
| 168,696,226 | | |
$ | 168,696 | | |
$ | 59,044,519 | | |
$ | — | | |
$ | (266,432 | ) | |
$ | (63,088,096 | ) | |
$ | (4,141,114 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock
based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 54,923 | | |
| — | | |
| — | | |
| — | | |
| 54,923 | |
Series
A preferred dividends | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (89,568 | ) | |
| (89,568 | ) |
Warrants
issued as financing fee | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 16,614 | | |
| — | | |
| — | | |
| — | | |
| 16,614 | |
Common
shares issued for conversion of debt | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2,700,000 | | |
| 2,700 | | |
| 86,400 | | |
| — | | |
| — | | |
| — | | |
| 89,100 | |
Common
shares issued for settlement of related party fee | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 5,592,096 | | |
| 5,592 | | |
| 158,895 | | |
| — | | |
| — | | |
| — | | |
| 164,487 | |
Warrants
issued for settlement of loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 200,378 | | |
| — | | |
| — | | |
| — | | |
| 200,378 | |
Gain
on modification of related party debt | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 181,791 | | |
| — | | |
| — | | |
| — | | |
| 181,791 | |
Gain
on issuance of shares for settlement of accrued related party fees | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 373,556 | | |
| — | | |
| — | | |
| — | | |
| 373,556 | |
Other
comprehensive income (loss) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (37,405 | ) | |
| — | | |
| (37,405 | ) |
Net
loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (1,393,684 | ) | |
| (1,393,684 | ) |
Balance
at June 30, 2021 | |
| 199,100 | | |
$ | 199 | | |
| — | | |
$ | — | | |
| — | | |
$ | — | | |
| 176,988,322 | | |
$ | 176,988 | | |
$ | 60,117,076 | | |
$ | — | | |
$ | (308,837 | ) | |
$ | (64,571,348 | ) | |
$ | (4,580,922 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
at December 31, 2021 | |
| 199,100 | | |
$ | 199 | | |
| 3 | | |
$ | 152,397 | | |
| 8,500 | | |
$ | 850 | | |
$ | 176,988,322 | | |
$ | 176,988 | | |
$ | 60,216,722 | | |
$ | — | | |
$ | (269,155 | ) | |
$ | (61,339,161 | ) | |
$ | (1,061,160 | ) |
Series
A preferred dividends | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (89,595 | ) | |
| (89,595 | ) |
Series
C preferred dividends | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (4,260 | ) | |
| (4,260 | ) |
Preferred
Series C issued for cash | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2,500 | | |
| 250 | | |
| — | | |
| — | | |
| 24,750 | | |
| — | | |
| — | | |
| — | | |
| 25,000 | |
Warrants
issued as financing fee | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,416 | | |
| — | | |
| — | | |
| — | | |
| 1,416 | |
Other
comprehensive income (loss) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| | | |
| (32,902 | ) | |
| — | | |
| (32,902 | ) |
Net
income (loss) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (646,280 | ) | |
| (646,280 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
at June 30, 2022 | |
| 199,100 | | |
$ | 199 | | |
| 3 | | |
$ | 152,397 | | |
| 11,000 | | |
$ | 1,100 | | |
$ | 176,988,322 | | |
$ | 176,988 | | |
$ | 60,242,888 | | |
$ | — | | |
$ | (302,057 | ) | |
$ | (62,079,296 | ) | |
$ | (1,807,781 | ) |
The
accompanying notes are an integral part of these condensed consolidated interim financial statements.
PETROLIA
ENERGY CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| |
Six months ended
June 30, 2022 | | |
Six months ended
June 30, 2021 | |
Cash Flows from Operating Activities | |
| | | |
| | |
Net gain (loss) | |
$ | (646,280 | ) | |
$ | (1,393,684 | ) |
Adjustment to reconcile net gain (loss) to net cash provided by (used in) operating activities: | |
| | | |
| | |
Depletion, depreciation and amortization | |
| 113,198 | | |
| 436,424 | |
Asset retirement obligation accretion | |
| 85,898 | | |
| 181,724 | |
Operating lease | |
| (544 | ) | |
| (2,800 | ) |
Amortization of debt discount | |
| 27,715 | | |
| 122,429 | |
Change in fair value of derivative liabilities | |
| (17,339 | ) | |
| 104,605 | |
Stock-based compensation expense | |
| — | | |
| 54,923 | |
Warrants issued as financing fees | |
| 1,416 | | |
| 16,614 | |
Changes in operating assets and liabilities | |
| | | |
| | |
Accounts receivable | |
| 5,601 | | |
| (43 | ) |
Other current assets | |
| (756 | ) | |
| — | |
Other assets | |
| 40,442 | | |
| — | |
Accounts payable | |
| 1,363,562 | | |
| 163,234 | |
Accounts payable – related parties | |
| (3,110 | ) | |
| 15,452 | |
Accrued liabilities | |
| 108,010 | | |
| (127,235 | ) |
Accrued liabilities – related parties | |
| 75,584 | | |
| 340,868 | |
Net cash flows from operating activities | |
| 1,153,397 | | |
| (87,489 | ) |
| |
| | | |
| | |
Cash Flows from Investing Activities | |
| | | |
| | |
Cash flows from investing activities | |
| — | | |
| — | |
| |
| | | |
| | |
Cash Flows from Financing Activities | |
| | | |
| | |
Repayments on notes payable | |
| (133,491 | ) | |
| (20,969 | ) |
Repayments on related party notes payable | |
| (4,813 | ) | |
| (17,613 | ) |
Series C preferred stock | |
| 25,000 | | |
| — | |
Cash flows from financing activities | |
| (113,304 | ) | |
| (38,582 | ) |
| |
| | | |
| | |
Changes in foreign exchange rate | |
| (42 | ) | |
| 3,105 | |
| |
| | | |
| | |
Net change in cash | |
| 1,040,051 | | |
| (122,966 | ) |
Cash at beginning of period | |
| 14,058 | | |
| 155,045 | |
Cash at end of period | |
$ | 1,054,109 | | |
$ | 32,079 | |
SUPPLEMENTAL
DISCLOSURES
| |
Six months ended
June 30, 2022 | | |
Six months ended
June 30, 2021 | |
SUPPLEMENTAL DISCLOSURES | |
| | | |
| | |
Interest paid | |
$ | 99,195 | | |
$ | 165,354 | |
Income taxes paid | |
| — | | |
| — | |
NON-CASH INVESTING AND FINANCIAL DISCLOSURES | |
| | | |
| | |
Series A preferred dividends accrued | |
| 89,595 | | |
| 89,568 | |
Series C preferred dividends accrued | |
| 4,260 | | |
| — | |
Conversion of related party debt and payables | |
| — | | |
| 527,520 | |
Modification of related party debt | |
| — | | |
| 181,250 | |
Settlement of notes payable related party for common shares | |
| — | | |
| 135,000 | |
The
accompanying notes are an integral part of these condensed consolidated interim financial statements.
PETROLIA
ENERGY CORPORATION
NOTES
TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(Unaudited)
NOTE
1. ORGANIZATION AND BASIS OF PRESENTATION:
Petrolia
Energy Corporation (the “Company”) is in the business of oil and gas exploration, development and production.
Basis
of Presentation
The
accompanying unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with accounting
principles generally accepted in the United States of America (“US GAAP”) and the rules of the Securities and Exchange Commission
(“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s
latest Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the results of operations for the interim periods presented have been reflected herein. The results
of operations for such interim periods are not necessarily indicative of operations for a full year. Notes to the consolidated financial
statements which would substantially duplicate the disclosure contained in the audited financial statements for the year ended December
31, 2021, as reported in Form 10-K, have been omitted.
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Leases
Leases
are classified as operating leases or financing leases based on the lease term and fair value associated with the lease. The assessment
is done at lease commencement and reassessed only when a modification occurs that is not considered a separate contract.
Lessee
arrangements
Where
the Company is the lessee, leases classified as operating leases are recorded as lease liabilities based on the present value of minimum
lease payments over the lease term, discounted using the lessor’s rate implicit in the lease or the Company’s incremental
borrowing rate, if the lessor’s implicit rate is not readily determinable. The lease term includes all periods covered by renewal
and termination options where the Company is reasonably certain to exercise the renewal options or not to exercise the termination options.
Corresponding right-of-use assets are recognized consisting of the lease liabilities, initial direct costs and any lease incentive payments.
Lease
liabilities are drawn down as lease payments are made and right-of-use assets are depreciated over the term of the lease. Operating lease
expenses are recognized on a straight-line basis over the term of the lease, consisting of interest accrued on the lease liability and
depreciation of the right-of-use asset, adjusted for changes in index-based variable lease payments in the period of change.
Lease
payments on short-term operating leases with lease terms twelve months or less are expensed as incurred.
Fair
Value of Financial Instruments
Fair
value of financial instruments requires disclosure of the fair value information, whether or not recognized in the balance sheet, where
it is practicable to estimate that value. As of June 30, 2022, the amounts reported for cash, accrued interest and other expenses, notes
payable, convertible notes, and derivative liability approximate the fair value because of their short maturities.
We
adopted ASC Topic 820 for financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established
a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures
about fair value measurements.
Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”)
in an orderly transaction between market participants at the measurement date. The hierarchy is broken down into three levels based on
the observability of inputs as follows:
|
● |
Level
1 — Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability
to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted
prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree
of judgment; |
|
|
|
|
● |
Level
2 — Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable,
either directly or indirectly; and |
|
|
|
|
● |
Level
3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
We
measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring
basis are as follows as of June 30, 2022, and December 31,2021.
SCHEDULE
OF DERIVATIVE LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS
June 30, 2022 | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Derivative liabilities | |
| — | | |
| — | | |
| 5,215 | | |
| 5,215 | |
ARO liabilities | |
| — | | |
| — | | |
| 2,322,812 | | |
| 2,322,812 | |
| |
| | | |
| | | |
| | | |
| | |
December 31, 2021 | |
| | | |
| | | |
| | | |
| | |
Derivative liabilities | |
| — | | |
| — | | |
| 22,554 | | |
| 22,554 | |
ARO liabilities | |
| — | | |
| — | | |
| 2,257,027 | | |
| 2,257,027 | |
Gain
(loss) per share:
The
computation of basic income (loss) per share of common stock is based on the weighted average number of shares outstanding during the period. Basic and diluted average shares outstanding during the period are the same, because there are no
dilutive warrants or other instruments outstanding.
NOTE
3. GOING CONCERN
The
Company has suffered recurring losses from operations and currently has a working capital deficit. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern. The Company plans to generate profits by reworking its existing
oil or gas wells, as needed, funding permitting. The Company also needs to resolve its ongoing litigation, particularly in Canada with
the Utikuma asset.
The
Company will need to raise funds through either the sale of its securities, issuance of corporate bonds, joint venture agreements and/or
bank financing to accomplish its goals. The Company does not have any commitments or arrangements from any person to provide the Company
with any additional capital.
If
additional financing is not available when needed, the company may need to cease operations. The Company may not be successful in raising
the capital needed to drill and/or rework its existing wells. Any additional wells that the Company may drill may be non-productive.
Management believes that actions presently being taken to secure additional funding for the reworking of its existing oilfield infrastructure
will provide the opportunity for the Company to continue as a going concern. Since the Company has an oil producing asset, its goal is
to increase the production rate by optimizing its current infrastructure. The Company is also actively working to resolve its ongoing
litigation in both the U.S. and Canada. The accompanying financial statements have been prepared assuming the Company will continue as
a going concern. No adjustments to the financial statements have been made to account for this uncertainty.
NOTE
4. EVALUATED PROPERTIES
The
Company’s current properties can be summarized as follows.
SCHEDULE
OF COMPANY’S CURRENT PROPERTIES
Cost | |
Canadian properties | | |
United States properties | | |
Total | |
As of December 31, 2020 | |
$ | 4,314,805 | | |
$ | 4,304,622 | | |
$ | 8,619,427 | |
Additions | |
| 787,250 | | |
| — | | |
| 787,250 | |
Dispositions | |
| (2,563,434 | ) | |
| — | | |
| (2,563,434 | ) |
Foreign currency translation | |
| (46,218 | ) | |
| — | | |
| (46,218 | ) |
As of December 31, 2021 | |
$ | 2,492,403 | | |
$ | 4,304,622 | | |
$ | 6,797,025 | |
Foreign currency translations | |
| (40,231 | ) | |
| — | | |
| (40,231 | ) |
As of June 30, 2022 | |
$ | 2,452,172 | | |
$ | 4,304,622 | | |
$ | 6,756,794 | |
| |
| | | |
| | | |
| | |
Accumulated depletion | |
| | | |
| | | |
| | |
As of December 31, 2020 | |
$ | 2,631,749 | | |
$ | 61,551 | | |
$ | 2,693,300 | |
Dispositions | |
| (2,629,672 | ) | |
| — | | |
| (2,629,672 | ) |
Depletion | |
| 378,306 | | |
| — | | |
| 378,306 | |
Foreign currency translation | |
| 7,026 | | |
| — | | |
| 7,026 | |
As of December 31, 2021 | |
$ | 387,409 | | |
$ | 61,551 | | |
$ | 448,960 | |
Depletion | |
| 112,081 | | |
| — | | |
| 112,081 | |
Foreign currency translation | |
| (7,755 | ) | |
| — | | |
| (7,755 | ) |
As of June 30, 2022 | |
$ | 491,736 | | |
$ | 61,551 | | |
$ | 553,287 | |
| |
| | | |
| | | |
| | |
Net book value as of December 31, 2021 | |
$ | 2,104,994 | | |
$ | 4,243,071 | | |
$ | 6,348,065 | |
Net book value as of June 30, 2022 | |
$ | 1,960,435 | | |
$ | 4,243,071 | | |
$ | 6,203,506 | |
On
August 6, 2019, the Company entered into a Purchase and Sale Agreement (“PSA”) for the sale of the NOACK property with Flowtex
Energy LLC (“FT”). The purchaser agreed to pay $400,000 for the NOACK Assets including a $20,000 deposit that was received
on August 15, 2019, and the remaining balance of $380,000 to be received by September 30, 2019. By December 31, 2019, FT had made cumulative
payments of $375,000, resulting in a $25,000 account receivable to the Company on June 30, 2021, which was included in other current
assets. The $400,000 was recorded as a gain on sale of properties. On July 6, 2021, the remaining $25,000 accounts receivable was settled
via the following: the purchaser remitted a cash payment of $8,995, as well as paying (on the Company’s behalf) $16,005 of outstanding
property tax invoices previously incurred by the Company.
On
May 1, 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 CEO 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 (CND), 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
(CND). In addition, at the time WTI price exceeded $57/bbl the Company would pay an additional $250,000 (CND) (for a cumulative contingent
total of $1,000,000). The price of WTI crude exceeded $50/bbl on January 6, 2021 and exceeded $57/bbl on February 8, 2021. The additional
payments due were netted with the accounts receivable balance from previous Joint Interest Billing statements from BSR. The total USD
value of the addition was $787,250, using prevailing exchange rates on the respective dates. Included in the terms of the agreement,
the Company also funded their portion of the Alberta Energy Regulator (“AER”) bond fund requirement ($592,699 USD), necessary
for the wells to continue in production after the acquisition. Additional funds ($380,742 USD) remain in the other current asset balance
for future payments from BSR, related to the acquisition.
On
July 27, 2020, the Company entered into a settlement agreement pursuant to which nine leases totalling approximately 3,800 acres of the
4,880-acre Twin Lakes San Andres Unit were forfeited as a part of the settlement agreement. Consequently, the Company no longer has the
right to produce oil, gas, or other hydrocarbons and any other minerals from the mineral estate encumbered by the leases and owned by
the Trustee. The company accounted for the forfeiture of the TLSAU properties, in accordance with Reg S-W.T.Rule 4-10(c)(6). Accordingly,
an analysis of multi-period reserve reports was performed to determine the percentage of the cumulative US full cost pool’s reserves
that were forfeited (56% or 943,820). Then that percentage was multiplied by the period end net property balance of $10,175,456. This
resulted in a write down of $5,648,994 ($10,175,456 * 56%) of the US cost pool, which was recorded as part of operating expenses for
the year ended December 31, 2020. Note that both TLSAU and SUDS make up the US full cost pool.
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. 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.
NOTE
5. LEASES
Our
adoption of ASU 2016-02, Leases (Topic 842), and subsequent ASUs related to Topic 842, requires us to recognize substantially all leases
on the balance sheet as an ROU asset and a corresponding lease liability. The new guidance also requires additional disclosures as detailed
below. We adopted this standard on the effective date of January 1, 2019 and used this effective date as the date of initial application.
Under this application method, we were not required to restate prior period financial information or provide Topic 842 disclosures for
prior periods. We elected the ‘package of practical expedients,’ which permitted us to not reassess our prior conclusions
related to lease identification, lease classification, and initial direct costs, and we did not elect the use of hindsight.
Lease
ROU assets and liabilities are recognized at commencement date of the lease, based on the present value of lease payments over the lease
term. The lease ROU asset also includes any lease payments made and excludes any lease incentives. When readily determinable, we use
the implicit rate in determining the present value of lease payments. When leases do not provide an implicit rate, we use our incremental
borrowing rate based on the information available at the lease commencement date, including the lease term.
Short-term
leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense for short-term leases is recognized
on a straight-line basis over the lease term. As of June 30, 2022, we did not have any short-term leases.
The
tables below present financial information associated with our lease.
SCHEDULE
OF FINANCIAL INFORMATION LEASE
| |
Balance Sheet Classification | |
June 30, 2022 | | |
December 31, 2021 | |
| |
| |
| | |
| |
Right-of-use assets | |
Other long-term assets | |
| 7,454 | | |
| 12,821 | |
Current lease liabilities | |
Other current liabilities | |
| 7,998 | | |
| 13,909 | |
Non-current lease liabilities | |
Other long-term liabilities | |
| — | | |
| — | |
As
of June 30, 2022, the maturities of our lease liability are as follows:
SCHEDULE OF MATURITIES LEASE LIABILITY
| |
| | |
2022 | |
$ | 7,998 | |
Less: Imputed interest | |
| (544 | ) |
Present value of lease liabilities | |
$ | 7,454 | |
NOTE
6. NOTES PAYABLE
The
following table summarizes the Company’s notes payable:
SCHEDULE
OF NOTES PAYABLE
| |
Interest rate | | |
Date of maturity | |
June 30, 2022 | | |
December 31, 2021 | |
Truck loan (ii) | |
| 5.49 | % | |
January 20, 2022 | |
$ | — | | |
$ | 4,021 | |
Credit note IV (iii) | |
| 10 | % | |
January 01, 2020 | |
| 697,895 | | |
| 831,387 | |
Discount on credit note IV | |
| | | |
| |
| (69,286 | ) | |
| (97,001 | ) |
Credit note V(iv) | |
| 10 | % | |
December 31, 2022 | |
| 2,085,432 | | |
| 2,085,432 | |
Lee Lytton | |
| | | |
On demand | |
| 3,500 | | |
| 3,500 | |
Credit note VI (v) | |
| 10 | % | |
December 31, 2021 | |
| 266,900 | | |
| 416,900 | |
Credit note VII (vi) | |
| 10 | % | |
December 31, 2021 | |
| 150,000 | | |
| — | |
Quinten Beasley | |
| 10 | % | |
October 14, 2016 | |
| 5,000 | | |
| 5,000 | |
Jovian Petroleum Corporation (vii) | |
| 3.5 | % | |
December 31, 2021 | |
| 178,923 | | |
| 178,923 | |
M. Horowitz | |
| 10 | % | |
October 14, 2016 | |
| 10,000 | | |
| 10,000 | |
| |
| | | |
| |
$ | 3,328,364 | | |
$ | 3,438,162 | |
|
(iv) |
|
|
|
|
|
|
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 expired on May 15, 2021, (b) 500,000 shares of common stock have an exercise price of
$0.12 per share in U.S. dollars, and expired 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
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 balance increased by $146,000 resulting in a $346,038
ending balance. On January 1, 2021, the Lender signed amended loan agreements, which moved the balance of this note to new credit
notes. |
|
|
|
|
|
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 consolidating this loan with $146,038 of another credit note and accrued interest
on those amounts. |
|
|
|
|
|
On
December 1, 2021, the Company signed an amended loan agreement with third party for $2,085,432, which combined all notes described
above and accrued interest on those amounts. The loan bears interest at 10% per annum and has maturity date of December 31, 2022.
The note holds a security interest against the 25% Working Interest in the Cona assets and a security guarantee of a working interest
in the Utikuma oil field and a working interest in the TLSAU field. On January 1, 2022, this note was assigned to Blue Sky Resources. |
|
|
|
|
(v) |
|
The
following is a schedule of future minimum repayments of notes payable as of June 30, 2022:
SCHEDULE
OF FUTURE MINIMUM REPAYMENTS OF NOTES PAYABLE
| |
| | |
2022 | |
$ | 3,397,650 | |
Thereafter | |
| — | |
Total | |
$ | 3,397,650 | |
NOTE
7. RELATED PARTY NOTES PAYABLE
The
following table summarizes the Company’s related party notes payable:
SCHEDULE OF RELATED
PARTY NOTES PAYABLE
| |
Interest rate | | |
Date of maturity | |
June 30, 2022 | | |
December 31, 2021 | |
Ivar Siem (i) | |
| 9 | % | |
December 31, 2021 | |
| 278,435 | | |
| 278,435 | |
Mark Allen (ii) | |
| 9 | % | |
August 15, 2021 | |
| 55,000 | | |
| 55,000 | |
Mark Allen (iii) | |
| 12 | % | |
June 30, 2020 | |
| 200,000 | | |
| 200,000 | |
Mark Allen (iv) | |
| 9 | % | |
June 30, 2021 | |
| 241,125 | | |
| 245,938 | |
| |
| | | |
| |
$ | 774,560 | | |
$ | 779,373 | |
The
following is a schedule of future minimum repayments of related party notes payable as of June 30, 2022:
SCHEDULE
OF FUTURE MINIMUM REPAYMENTS OF RELATED PARTY NOTES PAYABLE
| |
| | |
2022 | |
$ | 774,560 | |
Thereafter | |
| — | |
Total | |
$ | 774,560 | |
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. These warrants expired on May 11, 2021.
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, 2021 | |
| 22,554 | |
Additions | |
| — | |
Fair value adjustment | |
| (17,339 | ) |
As of June 30, 2022 | |
$ | 5,215 | |
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
| |
June 30, 2022 | |
Risk-free interest rate | |
| 2.51 | % |
Expected life | |
| 0.5 years | |
Expected dividend rate | |
| 0 | % |
Expected volatility | |
| 281 | % |
NOTE
9. ASSET RETIREMENT OBLIGATIONS
The
Company has a number of oil and gas wells in production and will have 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.
Petrolia
Energy Corporation (“Petrolia” or the “Company”) is the operator of certain wells located in New Mexico, at the
Twin Lakes San Andres Unit (“TLSAU”) Field. TLSAU is located 45 miles from Roswell, Chaves County, New Mexico.
On
March 4, 2021, the Company received a letter from the Commissioner of Public Lands of the State of New Mexico, which was sent to us and
certain other parties notifying such parties of certain non-compliance with the laws and regulations that it administers. The deficiencies
are currently in the process of being settled by a third party agreeing to plug six wells, including at least two Company operated wells
(TLSAU wells #316 and #037). The scope of the matter above included only 240 acres of the 640 acres of The New Mexico State Land Office
(SLO) lease.
On
April 8, 2021, the State of New Mexico Energy, Minerals and Natural Resources Department 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
(the “NMAC”), associated with required reporting, inactive wells and financial assurance requirements, plugging certain abandoned
wells, providing required financial assurance in connection with plugging expenses, and proposing to assess certain civil penalties in
the amount of an aggregate of approximately $35,100.
As
previously reported and in Petrolia’s Form 8-K dated October 25, 2021 (reference to which is hereby made), on April 8, 2021, the
State of New Mexico Energy, Minerals and Natural Resources Department, Oil Conservation Division (the “OCD”) issued a Notice
of Violation (the “NOV”) to Petrolia alleging that the Company violated four regulations under Title 19, Chapter 15 of the
New Mexico Administrative Code (the “NMAC”) by: (i) failing to file production reports for certain wells, (ii) exceeding
the number of inactive wells allowed, (iii) failing to provide financial assurance in the amount required, and (iv) failing to provide
additional financial assurance in the amount required.
The
Company acknowledged the violations alleged in the NOV and requested an informal resolution. On December 30, 2021, to resolve this matter,
Petrolia entered into a Stipulated Final Order (the “SFO”) in Case No. 21982 with the OCD whereby Petrolia among other things
agreed to: (i) submit appropriate forms for wells identified on the SFO Inactive Well List, (ii) plug the specific TLSAU wells listed
in section 8 (c) and (d) of the SFO, as well as submit all required information and forms specified in the SFO, (iii) open an escrow
account meeting the terms listed in the SFO, (iv) deposit funds into an escrow account within the timeframe described in the SFO, and
(v) provide the OCD with a report proposing deadlines for bringing all remaining wells into compliance.
The
Company entered into a settlement agreement on July 27, 2020 with Moon Company, Trustee of the O’Brien Mineral Trust pursuant to
which nine leases totaling approximately 3,800 acres of the 4,880 acre Twin Lakes San Andres Unit were terminated as a part of the settlement
agreement. Pursuant to this settlement agreement, the Company no longer has the right to produce oil, gas, or other hydrocarbons and
any other minerals from the mineral estate encumbered by the leases and owned by the trustee of the O’Brien Mineral Trust.
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.
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
| |
| June 30, 2022 | |
Inflation rate | |
| 1.92 - 2.15 | % |
Estimated asset life | |
| 12-21 years | |
The
following table shows the change in the Company’s ARO liability:
SCHEDULE
OF CHANGE IN ASSET RETIREMENT OBLIGATIONS
| |
Canadian properties | | |
United States properties | | |
Total | |
Asset retirement obligations, December 31, 2020 | |
$ | 2,711,909 | | |
$ | 912,224 | | |
$ | 3,624,133 | |
Plugging liability at Twin Lakes | |
| — | | |
| 132,000 | | |
| 132,000 | |
Accretion expense | |
| 290,367 | | |
| 26,506 | | |
| 316,873 | |
Disposition | |
| (1,824,339 | ) | |
| — | | |
| (1,824,339 | ) |
Foreign currency translation | |
| 8,360 | | |
| — | | |
| 8,360 | |
Asset retirement obligations, December 31, 2021 | |
$ | 1,186,297 | | |
$ | 1,070,730 | | |
$ | 2,257,027 | |
Accretion expense | |
| 72,043 | | |
| 13,855 | | |
| 85,898 | |
Foreign currency translation | |
| (20,113 | ) | |
| — | | |
| (20,113 | ) |
Asset retirement obligations, June 30, 2022 | |
$ | 1,238,227 | | |
$ | 1,084,585 | | |
$ | 2,322,812 | |
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 $89,595 were declared for the six months ended June 30, 2022,
and $89,568 the six months ended June 30, 2021.
The
holders of Series B Preferred Stock do not accrue dividends and have no conversion rights. For so long as any shares of Series B Preferred
Stock remain issued and outstanding, the holders thereof, voting separately as a class, have the right to vote on all shareholder matters
(including, but not limited to at every meeting of the stockholders of the Company and upon any action taken by stockholders of the Company
with or without a meeting) equal to sixty percent (60%) of the total vote. No shares of Series B Preferred Stock held by any person who
is not then a member of Board of Directors of the Company shall have any voting rights.
The
holders of Series C Preferred Stock are entitled to receive cumulative dividends at a rate of 8% per annum. If any shares of Series C
Preferred Stock remain outstanding as of December 31, 2023, the dividend rate will increase to 11% per annum. The Series C Preferred
Stock will automatically convert into common stock upon any registered public offering of the Company’s common stock. At conversion,
the value of each dollar of Series C Preferred Stock (based on a $10 per share price) will convert into 100 common shares (which results
in a $0.01 per common share conversion rate).
In
accordance with the terms of the Series C Preferred Stock, cumulative dividends of $4,260 and $0 were declared for the six months ended
June 30, 2022, and June 30, 2021, respectively.
Common
stock
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 and 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. 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, Mark Allen converted $30,000 of unpaid contract wages from early 2020 into 333,333 common shares of common stock. A conversion
price of $0.09 per share was used to determine the number of shares.
On
March 30, 2021, Mark Allen converted a defaulted secured loan of $135,000 and $9,888 of accrued interest 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 of Petrolia Energy Corporation is currently not traded. On September 27, 2022, the Financial Industry Regulatory Authority
(“FINRA”) pulled the Company’s stock symbol due to inactivity in the Company’s security for a year. The
Company is taking steps to become current in its filings with the Securities and Exchange Commission and upon becoming current in its
filings with the Securities and Exchange Commission, it plans to engage a market maker to file a Form 15c2-11 with FINRA and obtain a
stock symbol.
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, 2020 | |
| 40,764,666 | | |
$ | 0.13 | |
Granted | |
| 9,400,000 | | |
| 0.09 | |
Expired | |
| (20,464,666 | ) | |
| 0.11 | |
Outstanding at December 31, 2021 | |
| 29,700,000 | | |
$ | 0.13 | |
Granted | |
| 500,000 | | |
| 0.10 | |
Expired | |
| (4,480,000 | ) | |
| 0.11 | |
Outstanding at June 30, 2022 | |
| 25,720,000 | | |
$ | 0.13 | |
As
of June 30, 2022, the weighted-average remaining contractual life of warrants outstanding was 1.15 years (December 31, 2021 – 1.71
years).
As
of June 30, 2022, the intrinsic value of warrants outstanding is $0.00 (December 31, 2021 - $0.00).
The
table below summarizes warrant issuances during the six months ended June 30, 2022, and year ended December 31, 2021:
SCHEDULE OF WARRANTS
ISSUANCE DURING PERIOD
| |
June 30, 2022 | | |
December 31, 2021 | |
Warrants granted: | |
| | | |
| | |
Board of Directors and Advisory Board service | |
| — | | |
| 3,000,000 | |
Pursuant to financing arrangements | |
| 500,000 | | |
| 1,000,000 | |
Pursuant to loan agreements | |
| — | | |
| 5,400,000 | |
Total | |
| 500,000 | | |
| 9,400,000 | |
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 OF WARRANTS
| |
June 30, 2022 | | |
December 31, 2021 | |
Risk-free interest rate | |
| 2.99 | % | |
| 0.16% to 0.97 | % |
Expected life | |
| 3.0 years | | |
| 2.0 – 3.0 years | |
Expected dividend rate | |
| 0 | % | |
| 0 | % |
Expected volatility | |
| 281 | % | |
| 277%
to 356 | % |
NOTE
11. RELATED PARTY TRANSACTIONS
On
January 25, 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 25, 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 was reinstated as Interim Chief Financial Officer and 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, prior President Mark Allen was issued 333,333 shares of common stock. A conversion price of $0.09 per share was used
to determine the number of shares. 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 30, 2021, prior 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 with $9,888 of accrued interest and outstanding guaranteed return on that loan of $135,000.
The shares were issued at the price on that date of $0.033. In addition, Mr. Allen 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
Scholes method. This created a loss of $98,690 that was recorded as a reduction to additional paid in capital, due to the related party
nature of the transaction.
On
August 21,2021, the Company signed a Letter Agreement to divest the Company’s wholly owned Canada subsidiary, Petrolia Canada Corporation
(PCC) and its assets in consideration for $6,500,000 in Canadian dollars (approximately $5,150,000 in U.S. dollars) less any contingent
liabilities. The buyer is Blue Sky Resources Ltd. (“Blue Sky”), an affiliated party to Zel C. Khan, the Company’s former
Chief Executive Officer. Petrolia Canada Corporation assets include a 50% working interest in approximately 28,000 acres located in the
Utikuma Lake area in Alberta, Canada, and 28% working interest in the Luseland, Hearts Hill, and Cuthbert fields located in Southwest
Saskatchewan and Eastern Alberta. The Company received a non-refundable deposit of $200,000 CAD on August 31, 2021. The remaining payment
schedule is as follows: $2,000,000 CAD on the Closing Date (scheduled for September 30, 2021), $1,000,000 CAD on October 31, 2021, less
Petrolia’s contingent liabilities associated with the acquisition of Utikuma, and $3,300,000 CAD on December 31, 2021. See Form
8-K reference in Exhibits section. This transaction did not close, and the $200,000 CAD was added to other payables due to Blue Sky Resources
in the fourth quarter of 2021.
On
October 25, 2021, Petrolia Energy Corporation issued one share of its newly designated shares of Series B Preferred Stock to each of
the three members of its then Board of Directors, (1) James E. Burns, (2) Leo Womack and (3) Ivar Siem, in consideration for services
rendered to the Company as members of the Board of Directors. Such shares of Series B Preferred Stock vote in aggregate sixty percent
(60%) of the total vote on all shareholder matters, voting separately as a class. This stock was valued by an independent party at $50,799
per share. For further information, see Form 8-K reference in Exhibits section. The purpose of issuing the three Series B Preferred shares is to protect
the company while the disputes described in the Form 8-KCurrent Report, filed on March 18, 2022, are heard and resolved through the U.S.
court system. The Series B Preferred shares will likely be retired once the litigation is resolved.
In
October and November of 2021, Board Member Leo Womack purchased an aggregate of 2,500 shares of Series C Preferred Stock for cash of
$25,000.
On
January 31, 2022, Board Member Leo Womack purchased 2,500 more shares of Series C Preferred Stock for cash of $25,000.
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 | |
Six months ended June 30, 2021 | |
| | | |
| | | |
| | |
Revenue | |
$ | 2,318,321 | | |
$ | 12,286 | | |
$ | 2,330,607 | |
Production costs | |
| (2,106,632 | ) | |
| (43,000 | ) | |
| (2,149,632 | ) |
Depreciation, depletion, amortization and accretion | |
| (589,631 | ) | |
| (28,517 | ) | |
| (618,148 | ) |
Results of operations from producing activities | |
$ | (377,942 | ) | |
$ | (59,231 | ) | |
$ | (437,173 | ) |
| |
| | | |
| | | |
| | |
Total long-lived assets, June 30, 2021 | |
$ | 2,132,294 | | |
$ | 4,253,535 | | |
$ | 6,385,829 | |
| |
| | | |
| | | |
| | |
Six months ended June 30, 2022 | |
| | | |
| | | |
| | |
Revenue | |
$ | 2,968,171 | | |
$ | 6,079 | | |
$ | 2,974,250 | |
Production costs | |
| (2,789,296 | ) | |
| (109,378 | ) | |
| (2,898,674 | ) |
Depreciation, depletion, amortization, and accretion | |
| (184,124 | ) | |
| (14,972 | ) | |
| (199,096 | ) |
|