NOTE 7. 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 upon the earlier to occur of (a) the majority consent of the holders of such Preferred Stock; (b) a registered public offering of the Company’s common stock, provided that the gross proceeds to the Company are at least $10 million and the price is at least $0.30; (c) the five year anniversary of the filing of the designation of the Preferred Stock with the Secretary of State of Texas (May 3, 2022); or (d) the date that the Company’s common stock price equals or exceeds $0.28 per share for 30 consecutive trading 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).

On February 5, 2018, one accredited investor subscribed and purchased 2,000 Series A preferred shares by remitting payment of $20,000. As of March 31, 2018, there were 199,100 preferred shares outstanding. 

In accordance with the terms of the preferred shares, a dividend was declared of $44,006.

Common Stock

During the three months ended March 31, 2018, the Company issued an aggregate of 110,739,588 shares of common stock. As of March 31, 2018, there were 222,437,810 shares of common stock outstanding.

On January 24, 2018, 350,000 shares, valued at $59,500, were issued in accordance with Mr. James Burns’ common stock related salary compensation. 

On January 24, 2018, Mr. James Burns was issued 616,210 shares of restricted common stock in consideration for 2017 deferred salary of $61,621. A debt settlement loss of $203,349 was recorded.

On February 1, 2018, a law firm was granted 100,000 shares (valued at $37,000) of common stock as a bonus for the Bow Energy acquisition at a fair value of $0.37 per share.

On February 1, 2018, a geologist consultant in Oklahoma, was issued 150,000 shares of common stock (valued at $18,000) at a deemed fair value of $0.12 per share (valued based on the Company’s stock trading price in 2017 when the obligation occurred), in exchange for his professional consulting services. 

On February 1, 2018, director, Joel Oppenheim subscribed for half of one unit (discussed below) resulting in the issuance of 208,333 shares of common stock and one warrant for gross proceeds of $25,000 at a price of $0.12 per unit. 83,333 shares of common stock were not issued until subsequent to quarter end and an amount of $10,000 is in subscriptions received in advance.

On February 1, 2018, a Director exercised warrants to purchase 1,110,000 shares of common stock by settling $102,590 of Accounts Payable to a company controlled by the director at an average share price of $0.092 per share. No gain or loss was recorded on settlement.

From January 1, 2018 to March 31, 2018, the Company continued with the private offering of its securities under Regulation D of the Securities Act to accredited investors. Each unit which has a price of $50,000, is comprised of 416,667 shares of common stock and one warrant to purchase an additional 416,667 shares of common stock at a price of $0.20 per share at any time prior to October 1, 2020. From January 1, 2018 to March 31, 2018, two and a half (2.5) units had been subscribed for and 1,041,667 shares of common stock and warrants to acquire 1,041,667 shares of common stock had been purchased by various accredited investors for $125,000.

On February 27, 2018, the Company closed the Acquisition and acquired all of the issued and outstanding shares of capital stock of Bow Energy Ltd, a related party, in consideration for 106,156,712 shares (valued at $34,607,088, less $27,129,963 relating to the impairment of the goodwill of Bow) of the Company’s common stock as disclosed in Note 5. The shares were valued on the volume weighted average share price of Bow’s common stock for the 90 days before the transaction was complete.

On February 28, 2018, one (1) warrant holder exercised a total of 360,000 warrants by remitting payment of $36,875 at an average share price of $0.102 per share.

On February 28, 2018, Director Joel Oppenheim exercised 630,000 warrants by remitting payment of $61,800 at an average share price of $0.098 per share. 

Warrants

Summary information regarding common stock warrants issued and outstanding as of March 31, 2018, is as follows:

The intrinsic value of warrants as of March 31, 2018 is $151,581 (December 31, 2017: $1,106,583).

The table below summarizes the warrants granted during the three month period ended March 31, 2018:

Stock options

Upon closing of the Acquisition, the Company granted stock options to purchase 3,500,000 shares of common stock to former Bow employees and directors exercisable at $0.12 per share and expiring on February 27, 2021. The stock options were valued at $1,131,639 using the Black Scholes options pricing model with volatility of 283%, discount rate of 2.42% and a call option value of $0.32.

Subscriptions received in advance

On February 1, 2018, director, Joel Oppenheim subscribed for half of one unit resulting in the issuance of 208,333 shares of common stock and warrants to purchase 208,333 shares of common stock, for gross proceeds of $25,000 at a price of $50,000 per unit. 83,333 shares of common stock were not issued until subsequent to quarter end and an amount of $10,000 is included in subscriptions received in advance on the balance sheet.

On February 23, 2018, the Company received $12,500 at a subscription price of $0.12 in advance of shares being issued. The private placement closed on April 23, 2018 and 104,167 shares were issued.