Annual report pursuant to Section 13 and 15(d)

Equity

v3.19.3
Equity
12 Months Ended
Dec. 31, 2018
Stockholders' Equity Note [Abstract]  
Equity

NOTE 11. 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).

 

From April to June 2017, the Company issued an aggregate of 120,590 Preferred Shares priced at $10 per share or $1,205,900 in aggregate. The 120,590 shares were issued as follows: conversion of TORRI (40,500 shares), conversion of debt (28,900 shares - 25,900 related to short term notes and 3,000 related to equipment purchase), conversion of shareholder advances (27,090 shares of which 840 was for accrued interest) and cash (24,100 shares). Of the 120,590 shares, 57,990 of the shares were issued to related parties while 62,600 of the shares were issued to third parties.

 

On July 6, 2017, Mr. Rick Wilber agreed to convert his cumulative outstanding debt of $550,000 into 55,000 shares of Preferred Stock. The outstanding debt included the following: a $350,000 Convertible Secured Note dated June 17, 2013, a $100,000 Convertible Secured Note dated September 30, 2013 and a $100,000 Convertible Secured Note dated December 31, 2013. Subsequent to this conversion, all of the Company’s debt with Mr. Wilber is deemed cancelled and it is no longer due and payable. In connection with the settlement, Mr. Wilber retained both the warrants and shares that were previously issued by the Company related to the original sale of these notes (and their respective amendments).

 

On July 19, 2017, Jovian Petroleum Corporation, a related party, converted $2 million in debt into 12,749,285 shares of the Company’s common stock and 21,510 shares of the Company’s Preferred Stock. The Preferred Stock was priced at $10 per share with a value of $215,100. The CEO of Jovian is Quinten Beasley, our former director, and the 25% owner of Jovian is Zel C. Khan, our CEO and director.

 

During the year ended December 31, 2018, 2,000 shares of Preferred Stock were issued to an accredited investor for gross proceeds of $20,000.

 

In accordance with the terms of the Preferred Stock, cumulative dividends of $179,279 were declared for the year ended December 31, 2018.

 

Common stock

 

On November 7, 2017, the majority stockholders of the Company, via written consent to action without meeting, approved the filing of a Certificate of Amendment to the Company’s Certificate of Formation with the Secretary of State of Texas to (a) increase the number of authorized shares of common stock, par value $0.001 per share of the Company, to 400,000,000 shares of common stock; and (b) amend the par value of the Company’s preferred stock, from $0.10 per share to $0.001 per share, which amendment was subsequently filed with the Secretary of State of Texas. The financial statements have been retroactively adjusted to give effect to the change in par value.

 

All shares granted for goods or services and settlement of liabilities during the years ended December 31, 2018 and 2017, were valued based on the fair value of the shares issued.

 

During the year ended December 31, 2017, the Company issued 2,708,336 shares of common stock along with 2,708,336 attached warrants to purchase shares of common stock to various accredited investors for gross proceeds of $325,000.

 

During the year ended December 31, 2017, the Company issued a total of 22,749,285 shares of common stock with a fair value of $3,906,806 for the conversion of notes payable to a related party.

 

During the year ended December 31, 2017, the Company issued a total of 1,900,000 shares of common stock with a fair value of $243,200 to directors and employees as compensation for their services.

 

On May 12, 2017, a warrant holder exercised warrants to purchase 600,000 shares of common stock for cash proceeds of $48,000 at an average exercise price of $0.08 per share.

 

On July 6, 2017, the Company compensated a consultant for its services to the Company with 150,000 shares of common stock valued at $15,000.

 

On July 31, 2017, based on the terms of the agreement, $25,000 in convertible bridge notes were mandatorily converted to 271,096 shares of common stock. Based on the agreement, the debt was converted at $0.10 per share. This included the principal balance of $25,000 and accrued interest of $2,110. The market price of the shares on the conversion date was $0.12 per share resulting in a loss on conversion of $5,422.

 

On August 1, 2017, the Company issued 2,000,000 shares of common stock with a fair value of $246,000 to Joel Oppenheim, a director, in exchange for entering into a Letter of Credit arrangement.

 

On August 15, 2017, in exchange for services related to negotiations concerning New Mexico operating bond requirements, the Company paid a law firm 500,000 shares of common stock valued at $65,000. Such shares were provided as a bonus for the successful closing of the Twin Lakes San Andres Unit, New Mexico acquisition.

 

On September 26, 2017, director Joel Oppenheim exercised warrants to purchase 1,035,000 shares of common stock for cash proceed of $62,065 at an average exercise price of $0.06 per share.

 

From October to December 2017, the Company issued an aggregate of 750,000 shares of common stock to various parties for consulting services valued at $78,000.

 

During the year ended December 31, 2018, the Company closed private placements ranging from $0.08 to $0.12 per unit for a total of 3,750,000 units and gross proceeds of $397,500 (the “2018 Units”). Each 2018 Unit was comprised of one common share and one warrant entitling the holder to exercise such warrant for one common share for a period of two years from the date of issuance. The warrants have exercise prices ranging from $0.10 to $0.20 per share.

 

On January 24, 2018, 350,000 shares of common stock, valued at $59,500 or $0.17 per share, were issued in accordance with Mr. James Burns’ common stock related salary compensation.

 

On January 24, 2018, Mr. James Burns was issued 616,209 shares of restricted common stock, valued at $264,970 or $0.43 per share, in consideration for 2017 deferred salary of $61,621. A debt settlement loss of $203,349 was recorded.

 

On February 1, 2018, 100,000 shares of common stock, valued at $37,000 or $0.37 per share, were granted to a law firm as a bonus for the Bow Energy acquisition.

 

On February 1, 2018, a geologist consultant was issued 150,000 shares of common stock, valued at $45,900 or $0.31 per share, in exchange for professional consulting services.

 

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

 

On February 23, 2018, director Saleem Nizami was issued 100,000 shares of common stock, valued at $13,000 or $0.13 per share, in exchange for his professional consulting services at the SUDS, Oklahoma lease.

 

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 of common stock with a fair value of $34,607,088. See Note 4.

 

On February 28, 2018, a warrant holder exercised warrants to purchase 360,000 shares of common stock for cash proceeds of $36,875 at an average exercise price of $0.102 per share.

 

On February 28, 2018, director Joel Oppenheim exercised warrants to purchase 630,000 shares of common stock for cash proceed of $61,800 at an average exercise price of $0.098 per share.

 

On March 31, 2018, 350,000 shares of common stock, valued at $35,000 or $0.10 per share, were issued in accordance with Mr. James 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 ($180,000) were valued at the closing price of Petrolia’s shares on the grant date and were 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 benefits. 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 ($147,600) were calculated using a Black Scholes model and the restricted shares ($45,000) were valued at the closing price of Petrolia’s shares on the date of the agreement 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 or $0.10 per share, based on the closing price of the Company’s common stock.

 

On April 26, 2018, director Joel Oppenheim exercised warrants to purchase 500,000 shares of common stock for cash proceed of $50,000 at an average exercise price of $0.10 per share.

 

On May 9, 2018, in conjunction with a debt financing, the Company issued 500,000 shares of common stock, valued at $47,747 or $0.09 per share, as a financing fee.

 

On May 22, 2018, the Company issued 500,000 shares of common stock to then officer Tariq Chaudhary, who had served as the Chief Financial Officer, as part of his compensation package. The shares had a fair value of $50,000, or $0.10 per share, based on the closing price of the Company’s common stock on the grant date.

 

On June 25, 2018, the Company issued 600,000 shares of restricted common stock to consultants for services rendered. The shares had a fair value of $45,000, or $0.08 per share.

 

On August 31, 2018, the Company entered into an Exchange Agreement with Blue Sky, whose President is Ilyas Chaudhary, the father of Zel C. Khan, the Company’s Chief Executive Officer. Mr. Chaudhary and his affiliates would return 70,807,417 shares of common stock to treasury for the purchase of Bow Energy Ltd. The fair value of the cancelled shares was determined based on the closing price of the Company’s common stock on August 31, 2018, which was $0.07 per share for a fair value of $4,956,519. The 70,807,417 shares returned to treasury were subsequently cancelled.

 

On September 27, 2018, a warrant holder exercised warrants to purchase 310,000 shares of common stock for cash proceeds of $31,000 at an average exercise price of $0.10 per share.

 

On October 17, 2018, 2,000,000 shares of common stock with a fair value of $256,000 or $0.13 per share, were granted to a company controlled by a former director Quinten Beasley, Critical Communications Limited, pursuant to a separation agreement and his resignation as a member of the Board of Directors.

 

On October 22, 2018, director Leo B. Womack exercised warrants to purchase 1,000,000 shares of common stock. The exercise price of $60,000 or $0.06 per share was satisfied by forgiving debt outstanding to the holder of $60,000, with no gain or loss recognized.

 

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:

 

    Warrants     Weighted average exercise price  
Outstanding at year ended December 31, 2016     16,825,527       0.26  
Granted     19,896,670       0.19  
Exercised     (1,635,000 )     0.07  
Expired            
Outstanding at year ended December 31, 2017     35,087,197     $ 0.24  
Granted     24,829,666       0.11  
Exercised     (3,910,000 )     0.09  
Expired     (4,940,000 )     0.10  
Outstanding at quarter ended December 31, 2018     51,066,864       0.20  

 

As at December 31, 2018, the weighted-average remaining contractual life of warrants outstanding was 1.71 years (2017 - 2.15 years).

 

As at December 31 2018, the intrinsic value of warrants outstanding is $711,978 (2017 - $1,106,583).

 

The table below summarizes warrant issuances during the years ended December 31, 2018 and 2017:

 

   

Year ended

December 31,

 
    2018     2017  
Warrants granted:                
Board of directors and advisory board service     7,750,000       3,207,500  
Private placements     5,312,500       2,708,336  
Pursuant to termination agreements     5,250,000        
Pursuant to financing arrangements     3,810,000        
Pursuant to consulting agreements     2,000,000       50,000  
Pursuant to acquisition of Bow Energy Ltd., a related party     368,000        
Deferred salary – CEO, CFO     339,166       134,167  
Conversion of debt           10,400,000  
Providing bond related collateral           2,250,000  
Performance bonus – President           666,667  
Rick Wilber loan           480,000  
Total     24,829,666       19,896,670  

 

Warrants granted in the years ended December 31, 2018 and 2017 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.

 

    December 31, 2018     December 31, 2017  
Risk-free interest rate     2.39 %     1.44% - 1.98 %
Expected life     1.0 - 3.0 years       3.0 - 5.0 years  
Expected dividend rate     0 %     0 %
Expected volatility     274% - 283 %     309% - 321 %

 

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 Option Pricing Model with expected volatility of 283%, a discount rate of 2.42%, a dividend yield of 0% and an expected life of three years.