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 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).

On February 5, 2018, one accredited investor subscribed and purchased 2,000 shares of Series A Preferred Stock by remitting payment of $20,000. As of June 30, 2018, there were 199,100 Series A Preferred Stock shares outstanding.

In accordance with the terms of the Series A Preferred Stock, a dividend was declared of $88,947 for the six months ended June 30, 2018.

Common Stock

During the six months ended June 30, 2018, the Company issued an aggregate of 116,910,422 shares of common stock. As of June 30, 2018, there were 228,608,644 shares of common stock outstanding.

On January 24, 2018, 350,000 shares of common stock, 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.

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 June 30, 2018, the Company closed private placements at $0.12 per unit for a total of 2,187,500 units and gross proceeds of $262,500. Units were comprised of one common share and one warrant entitling the holder to exercise for one common share for a period of two years from the date of issuance.

On February 27, 2018, the Company closed the Acquisition and acquired all of the issued and outstanding shares of capital stock of Bow 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 4. 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 warrant holder exercised warrants to purchase a total of 360,000 shares of common stock by remitting payment of $36,875 at an average share price of $0.102 per share.

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

On March 31, 2018, 350,000 shares, valued at $35,000, were issued in accordance with Mr. Burns common stock related salary compensation.

On April 18, 2018, a Separation and Release Agreement between the former President of the Company, James Burns and the Company became effective, whereby Mr. Burns ceased to be an employee of the Company. Pursuant to the terms of the agreement, the Company paid Mr. Burns $33,000, and granted Mr. Burns warrants to purchase 3,000,000 shares of common stock at an exercise price of $0.10 per share. The Company also issued 2,000,000 shares of restricted common stock to Mr. Burns pursuant to the agreement of the Company on May 14, 2018. The fair value of the warrants ($221,401), was calculated using a Black Scholes model and the restricted shares were valued at the closing price of Petrolia’s stock, or $180,000 and recorded to stock compensation expense.

On April 20, 2018, the Company entered into an agreement to offer the position of Chairman of the Board of Directors to James Burns. Mr. Burns accepted and became Chairman of the Board effective May 1, 2018. Pursuant to the terms of the offer, Mr. Burns will be paid an annual salary of $65,000 and up to $25,000 in health benefits for Mr. Burns and his family. The Company issued 500,000 shares of restricted common stock to Mr. Burns on May 14, 2018. An additional 500,000 shares of restricted common stock will be issued upon a successful listing of the Company on the NASDAQ or NYSE exchanges. Mr. Burns was granted warrants to purchase 2,000,000 shares of common stock exercisable at $0.10 per share, expiring in 36 months, which were fully-vested upon their grant. The fair value of the warrants was calculated using a Black Scholes model ($147,600) and the restricted shares were valued at the closing price of Petrolia on the date of the agreement ($45,000) and were recorded to stock compensation expense.

On April 26, 2018, the Company issued 200,000 shares of restricted common stock as a bonus to a vendor valued at $20,000 based on the closing price of the Company’s common stock.

On April 26, 2018, an officer exercised warrants to purchase 500,000 shares of common stock at a strike price of $0.10 for gross proceeds of $50,000.

On May 9, 2018, in conjunction with the debt financing disclosed under the Note 6 (v), the Company issued 500,000 shares, fair valued at $47,456 as a financing fee.

On May 22, 2018, 500,000 shares of common stock were issued to an officer as part of his compensation package. These shares were fair valued based on the value of the closing price of Petrolia’s stock, or $50,000.

On June 25, 2018, the Company issued 600,000 shares of restricted common stock to consultants for services rendered. These shares had a fair value of $45,000.

Warrants

Summary information regarding common stock warrants granted and outstanding as of June 30, 2018, is as follows:

The intrinsic value of warrants as of June 30, 2018 is $91,143 and as of December 31, 2017: $1,106,583.

The table below summarizes the warrants granted during the six month period ended June 30, 2018:

The 3,750,000 warrants granted to directors and the advisory board for the six months ended June 30, 2018 were fair valued at $329,438. In conjunction with the acquisition of Bow, warrants to purchase 320,000 shares of common stock were assumed for a total of $368,000. The warrants are exercisable at CDN $0.10, mature upon repayment of a debt agreement and were fair valued at $103,632.

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 ($1,530,000) 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 give the Lender 10 days’ notice of our intent to repay and pay the Lender the interest which would have been due through the maturity date at the time of repayment. The Company is also required to make a payment of principal and interest in the amount of $50,818 per month towards the amount owed beginning on July 15, 2018. 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 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”). The Canadian Properties currently encompass 64 sections, with 240 oil and 12 natural gas wells currently producing on the properties. Additionally, there are several idle wells with potential for reactivation and 34 sections of undeveloped land (approximately 21,760 acres). The acquisition agreement was entered on June 29, 2018 with an effective date of June 1, 2018.

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 when the Loan Agreement is repaid; (b) 500,000 shares of common stock have an exercise price of $0.12 per share in U.S. dollars, and expire 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 fair valued at $47,500. In connection with warrants issued in Canadian dollars, the Company has assessed an initial derivative liability of $30,401. The derivative is fair valued at the end of each reporting period. The Company recorded a gain for the period ended June 30, 2018 of $3,556 to adjust the liability to its fair value at the end of the reporting period of $26,845.

The fair value of the warrants issued were assessed at $182,650 and recorded a total loss on extinguishment of debt of $260,162.

Pursuant to a termination agreement with the Company’s former CFO, the Company issued 250,000 warrants exercisable at $0.20 expiring in 36 months. The fair value of warrants issued was $109,021.

On March 31, 2018, 350,000 shares, valued at $35,000, were issued in accordance with Mr. Burns common stock related salary compensation.

Pursuant to a termination agreement with Mr. Burns, warrants to purchase 3,000,000 shares of common stock were issued at an exercise price of $0.10 per share; the warrants were fair valued using a Black Scholes model for $221,401.

James Burns was granted fully vested warrants to purchase 2,000,000 shares of common stock exercisable at $0.10 per share expiring in 36 months. The warrants were fair valued at $147,600.

The warrants to purchase 339,166 shares of common stock granted as deferred salary for the six month ended June 30, 2018 were fair valued at $34,478.

Pursuant to the loan agreement with director Joel Oppenheim, warrants to purchase 250,000 shares of common stock each were granted at March 31 and June 30, 2018. The warrants issued at March 31, 2018 were issued at an exercise price of $0.23 per share and fair valued at $24,623. The warrants issued at June 30, 2018 were issued at an exercise price of $0.10 per share and fair valued at $20,853.

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, expiring 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.