UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

☒ 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.

EXPLANATORY NOTE

Petrolia Energy Corp. (the “Company”) is filing this Amendment No. 1 to Form 10-Q for the fiscal quarter ended June 30, 2022 (“Amendment No. 1”) to amend the Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, originally filed by the Company with the Securities and Exchange Commission on March 2, 2023 (the “Original Report”):

(a) to amend “Part I. Financial Information, Item 4 Controls and Procedures”, to disclose the conclusions of the Company’s principal executive and principal financial officer, regarding the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report, based on the evaluation of these controls and procedures required by paragraph (b) of Rule 13a–15 or 15d–15 of the Exchange Act, which were inadvertently left out of the Original Report;

(b) to include an analysis of the changes in each caption of stockholders’ equity and noncontrolling interests presented in the balance sheets included in the Original Report for the most recent interim quarter as well as the comparable quarter of the preceding fiscal year; and

(c) to amend “Part I. Financial Information, Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations”, to include a discussion of any material changes in the Company’s results of operations between the quarter ended June 30, 2022 and 2021.

Other than the changes discussed above, the filing of the currently dated Exhibit 31.1, 31.2, 32.1 and 32.2 certifications and updated XBRL data under Item 15 of Part IV of this Amendment No. 1, no changes have been made to the Original Report or the exhibits filed therewith. Information not affected by this Amendment No. 1 remains unchanged and reflects the disclosures made at the time of the Original Report. Accordingly, this Amendment No. 1 should be read in conjunction with our filings made with the Securities and Exchange Commission after the date of the Original Report.

TABLE OF CONTENTS

		Page
Part I Financial Information

Item 1.	Consolidated Financial Statements	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25

Item 4.	Controls and Procedures	26

Part II Other Information

Item 1.	Legal Proceedings	26

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 3.	Defaults Upon Senior Securities	29

Item 4.	Mine Safety Disclosures	29

Item 5.	Other Information	29

Item 6.	Exhibit Index	29

SIGNATURES		30

EXHIBITS		31

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	)
Net loss before taxes		(861,594	)		(991,253	)		(646,280	)		(1,393,684	)

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)


Three Months Ended June 30	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 March 31,2021		199,100	$	199		—	$	—		—	$	—		176,988,322	$	176,988	$	60,082,160	$	—	$	(264,105	)	$	(63,535,202	)	$	(3,539,960	)

Stock based compensation		—		—		—		—		—		—		—		—		27,554		—		—			—			27,554
Series A preferred dividends		—		—		—		—		—		—		—		—		—		—		—			(44,893	)		(44,893	)
Warrants issued as financing fee		—		—		—		—		—		—		—		—		7,362		—		—			—			7,362
Other comprehensive income (loss)		—		—		—		—		—		—		—		—		—		—		(39,372	)		—			(39,372	)
Net loss		—		—		—		—		—		—		—		—		—		—		—			(991,253	)		(991,253	)
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 March 31, 2022		199,100	$	199		3	$	152,397		11,000	$	1,100	$	176,988,322	$	176,988	$	60,242,189	$	—	$	(239,298	)	$	(61,170,710	)	$	(87,135	)
Series A preferred dividends		—		—		—		—		—		—		—		—		—		—		—			(44,798	)		(44,798	)
Series C preferred dividends		—		—		—		—		—		—		—		—		—		—		—			(2,194	)		(2,194	)
Warrants issued as financing fee		—		—		—		—		—		—		—		—		699		—		—			—			699
Other comprehensive income (loss)		—		—		—		—		—		—		—		—		—				(62,759	)		—			(62,759	)
Net income (loss)		—		—		—		—		—		—		—		—		—		—		—			(861,594	)		(861,594	)
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	)

Six Months Ended June 30	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	)
Beginning balance		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	)
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	)
Ending balance		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
Utikuma acquisition – extra cost triggered by WTI		—		1,000,000

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.

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.

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

	(i)	All notes are current liabilities (due within one year or less from June 30, 2022.)

	(ii)	On January 6, 2017, the Company purchased a truck and entered into an installment note in the amount of $35,677 for a term of five years and interest at 5.49% per annum. Payments of principal and interest in the amount of $683 are due monthly. The note was paid off in January of 2022.

	(iii)	On January 2, 2020, the Company entered into a loan agreement in the amount of $1,000,000 with a third party (including a $120,000 origination fee). The note bore interest at an interest rate of $10% per annum and matures on June 30, 2020, with warrants to purchase 5,000,000 shares of common stock (the “Loan Warrants”), at an exercise price of $0.10 per share in Canadian dollars and expire on January 2, 2023. The fair value of issued warrants were recorded as a debt discount of $266,674 and monthly amortization of $11,111. These funds were initially placed in escrow, then on May 29, 2020, they were used for the purchase of the Utikuma oil field. Pursuant to a loan extension agreement, on October 30, 2020, the Company issued warrants to purchase 5,000,000 of common stock, at an exercise price of $0.05 per share, expiring on January 6, 2023. The fair value of the issued warrants was recorded as a debt discount of $166,289 and monthly amortization of $4,619.14.

	(iv)	On May 9, 2018, Bow entered into an Amended and Restated Loan Agreement with a third party. The Loan Agreement increased by $800,000 the amount of a previous loan agreement entered into between Bow and the Lender, to $1,530,000. The amount owed under the Loan Agreement accrues interest at the rate of 12% per annum (19% upon the occurrence of an event of default) and is due and payable on May 11, 2021, provided that the amount owed can be prepaid prior to maturity, beginning 60 days after the date of the Loan Agreement, provided that the Company gives the Lender 10 days’ notice of our intent to repay and pays the Lender the interest which would have been due through the maturity date at the time of repayment. The Loan Agreement contains standard and customary events of default, including cross defaults under other indebtedness obligations of us and Bow, and the occurrence of any event which would have a material adverse effect on us or Bow. The Company is required to make principal payments of $10,000 per month from January through September 2019 with the remaining balance of $710,000 due at maturity on May 11, 2021. The additional $800,000 borrowed in connection with the entry into the Loan Agreement was used by the Company to acquire a 25% working interest in approximately 41,526 acres located in the Luseland, Hearts Hill, and Cuthbert fields, located in Southwest Saskatchewan and Eastern Alberta, Canada (collectively, the “Canadian Properties” and the “Working Interest”). Upon the disposition of Bow, a total of $730,000 of the obligations owed under the Loan Agreement were transferred to Blue Sky Resources Ltd. (“Blue Sky”).

		In order to induce the Lender to enter into the Loan Agreement, the Company agreed to issue the Lender 500,000 shares of restricted common stock (the “Loan Shares”), which were issued on May 18, 2018, and warrants to purchase 2,320,000 shares of common stock (the “Loan Warrants”), of which warrants to purchase (a) 320,000 shares of common stock have an exercise price of $0.10 per share in Canadian dollars and 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)	Various shareholder advances provided by a lender during 2018 and 2019. There were no formal documents drawn. Interest rates were applied based on other similar loan agreements entered into by the Company during that period. On February 12, 2021, the Company entered into an amended loan agreement in the amount of $416,900 that consolidated these amounts. The loan bears interest at 10% per annum and has a maturity date of December 31, 2021. On August 31, 2021, this loan was in default due to missed interest payments, and a default interest rate was applied to the principal balance. On February 3, 2022, $150,000 of this note was assigned by the holder to Blue Sky Resources, as reflected in Credit note VII.

	(vi)	On February 3, 2022, $150,000 of Credit Note VI was assigned by the holder to Blue Sky Resources

	(vii)	On February 9, 2018, the Company entered into a Revolving Line of Credit Agreement (“LOC”) for $200,000 (subsequently increased to $500,000 on April 12, 2018) with Jovian Petroleum Corporation (“Jovian”). The initial agreement was for a period of 6 months, and it can be extended for up to 5 additional terms of 6 months each. All amounts advanced pursuant to the LOC will bear interest from the date of advance until paid in full at 3.5% simple interest per annum. Interest will be calculated on a basis of a 360-day year and charged for the actual number of days elapsed. Subsequent to period-end this LOC has been extended until December 31, 2021. As of September 1, 2021, Zel Khan and Quinten Beasley resigned from their positions at Petrolia Energy, so this note has been removed from the related party section. Also, see Note 13. Subsequent Events regarding the dispute of this value.

The following is a schedule of future minimum repayments of notes payable as of June 30, 2022:


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

	(i)	On August 15, 2019, the Company entered into a loan agreement in the amount of $75,000 with Ivar Siem. The note bears interest at an interest rate of 12% per annum with a four (4) month maturity. On December 4, 2019, the Company entered into a loan agreement in the amount of $100,000 with Ivar Siem. The note bears interest at an interest rate of 12% per annum with a six (6) month maturity. At the maturity date, the note holder has the right to collect the principal plus interest or convert into 1,250,000 shares of common stock at $0.08 per share. In addition, if converted, the note holder will also receive 5,000,000 warrants at an exercise price of $0.10 per share, vesting immediately with a 36-month expiration period. On February 28, 2020, the Company entered into a $50,000 loan agreement with Ivar Siem. The note does not bear any interest (0% interest rate) and is due on demand. The note includes warrants to purchase 200,000 shares of common stock (the “Loan Warrants”), at an exercise price of $0.10 per share in Canadian dollars and expire on March 1, 2022. On January 1, 2021, the Company entered into an amended loan agreement in the amount of $278,435, which combined the three previous loans, along with accrued interest. The note bears an interest rate of 9% and matured on December 21, 2021.

	(ii)	On April 15, 2020, the Company entered into an agreement, with Mark Allen, that included a funding clause where the Company borrowed $55,000 from Mr. Allen. The note bears interest at an interest rate of 9% per annum and matured on August 15, 2021.

	(iii)	During 2019, the Company entered into a loan agreement in the amount of $200,000 with Mark Allen. The note bears interest at an interest rate of 12% per annum and matured on June 30, 2020. At the maturity date, the note holder has the right to collect the principal plus interest or convert into 2,500,000 shares of common stock at $0.08 per share. In addition, upon conversion, the note holder will also receive 10,000,000 warrants at an exercise price of $0.10 per share, vesting immediately with a 36-month expiration period.

	(iv)	On January 3, 2020, the Company entered into a loan agreement in the amount of $100,000 with Mark Allen. The note bears interest at an interest rate of $10% per annum and matures on June 1, 2020, with warrants to purchase 400,000 shares of common stock (the “Loan Warrants”), at an exercise price of $0.10 per share in Canadian dollars and expire on January 3, 2023. The fair value of issued warrants were recorded as a debt discount of $31,946 and monthly amortization of $1,775. On February 14, 2020, the Company entered into a loan agreement in the amount of $125,000 with Mark Allen. The note bears interest at an interest rate of 10% per annum and matures on June 1, 2020, with warrants to purchase 750,000 shares of common stock (the “Loan Warrants”), at an exercise price of $0.10 per share in Canadian dollars and expire on February 14, 2022. The fair value of issued warrants were recorded as a debt discount of $38,249 and monthly amortization of $1,903. On January 1, 2021, the Company entered into an amended loan agreement in the amount of $245,938, which combined the two previous loans, along with accrued interest. The note bears an interest rate of 9% and matured on June 30, 2021.

The following is a schedule of future minimum repayments of related party notes payable as of June 30, 2022:


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 6, 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.

	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.