UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM
(Amendment No. 1)
For
the Fiscal Year Ended
OR
For the transition period from _______ to ________.
Commission
file number:
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes
☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes
☒
Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. ☒
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). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions 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 | ☐ | |
| ☒ | 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 has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark, whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes
The
aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which
the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s
most recently completed second fiscal quarter, April 30, 2023, was $
As of January 22, 2024, there were shares of the registrant’s common stock outstanding.
EXPLANATORY NOTE
Additionally, the Consent of Independent Registered Public Accounting Firm provided by Borgers and filed as Exhibit 23.1 to the Form 10-K is also being replaced by the Consent of Independent Registered Public Accounting Firm provided by Bush and filed as Exhibit 23.1 to this Amendment.
The Company’s Principal Executive and Principal Financial Officer has provided new certifications dated as of the date of this filing in connection with this Amendment (Exhibits 31.1, 31.2, 32.1 and 32.2).
Except as described above, no other portion of the Form 10-K is being amended and this Amendment does not reflect any events occurring after the filing of the Form 10-K.
TABLE OF CONTENTS
| PART IV | ||
| ITEM 15. | EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES | 1 |
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES.
| 1 |
| 2 |
| * | Filed herewith. |
| ** | Furnished, not filed |
| † | Includes management contracts and compensation plans and arrangements |
| 3 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| TRIO PETROLEUM CORP. | ||
| By: | /s/ Michael L. Peterson | |
| Michael L. Peterson | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: June 13, 2024 | ||
| By: | /s/ Greg Overholtzer | |
| Greg Overholtzer | ||
| Chief Financial Officer | ||
(Principal Financial Officer and Principal Accounting Officer) |
||
| Date: June 13, 2024 | ||
| 4 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities held on the dates indicated.
| Signature | Title | Date | ||
| /s/ Michael L. Peterson | Chief Executive Officer and Director | |||
| Michael L. Peterson | (principal executive officer) | June 13, 2024 | ||
| /s/ Greg Overholtzer | Chief Financial Officer | |||
| Greg Overholtzer | (principal financial officer and principal accounting officer) | June 13, 2024 | ||
| * | Executive Chairman and Director | |||
| Stan Eschner | June 13, 2024 | |||
| * | President | |||
| Terry Eschner | June 13, 2024 | |||
| * | Chief Operating Officer | |||
| Steven Rowlee | June 13, 2024 | |||
| * | Director | |||
| Frank Ingriselli | June 13, 2024 | |||
| * | Director | |||
| William J. Hunter | June 13, 2024 | |||
| * | Director | |||
| John Randall | June 13, 2024 | |||
| * | Director | |||
| Thomas J. Pernice | June 13, 2024 |
| *By: | /s/ Michael L. Peterson | |
| Michael L. Peterson | ||
| Attorney-in-fact |
| 5 |
TRIO PETROLEUM CORP.
Financial Statements for the Years Ended October 31, 2023 and 2022
| F-1 |
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Trio Petroleum Corp.
OPINION ON THE FINANCIAL STATEMENTS
We have audited the accompanying consolidated balance sheet of Trio Petroleum Corp. (the “Company”) as of October 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2023 and 2022, the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
SUBSTANTIAL DOUBT ABOUT THE COMPANY’S ABILITY TO CONTINUE AS A GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As disclosed in Note 3 of the financial statements, the Company has suffered substantial net losses and negative cash flows from operations in recent years and is dependent on debt and equity financing to fund its operations, all of which raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are disclosed in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
BASIS FOR OPINION
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements. We determined that there are no critical audit matters.
/s/
We have served as the Company’s auditor since 2024.
June 14, 2024
PCAOB ID Number
| F-2 |
TRIO PETROLEUM CORP.
BALANCE SHEETS
| October 31, 2023 | October 31, 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses and other receivables | ||||||||
| Deferred offering costs | ||||||||
| Total current assets | ||||||||
| Oil and gas properties - not subject to amortization | ||||||||
| Advance to operators | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Asset retirement obligations - current | ||||||||
| Convertible note, net of discounts | ||||||||
| Due to operators | ||||||||
| Notes payable - investors, net of discounts | ||||||||
| Notes payable - related party, net of discounts | ||||||||
| Warrants liability | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Franchise tax accrual | ||||||||
| Asset retirement obligations, net of current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 7) | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock, $ par value; shares authorized; -- shares issued and outstanding at October 31, 2023 and 2022, respectively | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding as of October 31, 2023 and 2022, respectively | ||||||||
| Stock subscription receivable | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements.
| F-3 |
TRIO PETROLEUM CORP.
STATEMENTS OF OPERATIONS
For the Years Ended October 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | $ | $ | ||||||
| Operating expenses: | ||||||||
| Exploration expense | $ | $ | ||||||
| General and administrative expenses | ||||||||
| Stock-based compensation expense | ||||||||
| Accretion expense | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other expenses: | ||||||||
| Interest expense | ||||||||
| Penalty fees | ||||||||
| Loss on settlement | ||||||||
| Loss on note conversion | ||||||||
| Licenses and fees | ||||||||
| Total other expenses | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Provision for income taxes | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Basic and Diluted Net Loss per Common Share | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted Average Number of Common Shares Outstanding | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of these financial statements.
| F-4 |
TRIO PETROLEUM CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
| Stock | Additional | Total | ||||||||||||||||||||||
| Common Stock | Subscription | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Receivable | Capital | Deficit | Equity | |||||||||||||||||||
| Balance at November 1, 2022 | $ | $ | ( | ) | $ | $ | ( | ) | $ | | ||||||||||||||
| Issuance of common stock for cash, net | ||||||||||||||||||||||||
| Issuance of conversion shares related to the January 2022 SPA | ||||||||||||||||||||||||
| Issuance of commitment shares related to the January 2022 SPA | ||||||||||||||||||||||||
| Issuance of common shares in IPO, net of underwriting discounts and offering costs | ||||||||||||||||||||||||
| Issuance of pre-funded warrants | - | |||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants, net | ||||||||||||||||||||||||
| Issuance of common stock for services, net | ||||||||||||||||||||||||
| Issuance of restricted stock units under the Equity Incentive Plan | ( | ) | ||||||||||||||||||||||
| Issuance of common stock for warrants that can be exercised per the Resale S-1/A | ( | ) | ||||||||||||||||||||||
| Issuance of equity warrants in connection with convertible debt (Tranche #1) | - | |||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at October 31, 2023 | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||
| Balance at November 1, 2021 | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||
| Issuance of founders’ shares | ||||||||||||||||||||||||
| Issuance of security interest shares to investors | ||||||||||||||||||||||||
| Issuance of common stock for cash, net | ||||||||||||||||||||||||
| Issuance of warrants in connection with investor financing | - | |||||||||||||||||||||||
| Issuance of restricted stock units to outside directors | ( | ) | ||||||||||||||||||||||
| Issuance of restricted shares to executives | ( | ) | ||||||||||||||||||||||
| Interest imputed on note payable for acquisition of unproved oil and gas properties | - | |||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at October 31, 2022 | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||
The accompanying notes are an integral part of these financial statements.
| F-5 |
TRIO PETROLEUM CORP.
STATEMENTS OF CASH FLOWS
| For the Years Ended October 31, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Franchise tax fees | ( | ) | ||||||
| Bad debt expense | ||||||||
| Accretion expense | ||||||||
| Conversion of January 2022 SPA | ||||||||
| Debt discount - OID | ( | ) | ||||||
| Amortization of debt discount | ||||||||
| Write-off of January 2022 SPA receivable | ||||||||
| Imputed interest | ||||||||
| Stock-based compensation | ||||||||
| Penalty fees | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other receivables | ( | ) | ( | ) | ||||
| Accounts payable and accrued liabilities | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Other capital expenditures for unproved oil and gas properties | ( | ) | ||||||
| Drilling costs for exploratory well | ( | ) | ||||||
| Advances to operators | ||||||||
| Due to operators | ||||||||
| Net cash used in investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of common stock, net | ||||||||
| Proceeds from notes payable - investors | ||||||||
| Repayment of notes payable | ( | ) | ( | ) | ||||
| Proceeds from issuance of common stock in IPO | ||||||||
| Cash paid for debt issuance costs | ( | ) | ( | ) | ||||
| Proceeds from exercise of warrants, net | ||||||||
| Cash paid for deferred offering costs | ( | ) | ( | ) | ||||
| Proceeds from convertible note (Tranche #1) | ||||||||
| Net cash provided by financing activities | ||||||||
| NET CHANGE IN CASH | ( | ) | ||||||
| Cash - Beginning of period | ||||||||
| Cash - End of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Non-cash investing and financing activities: | ||||||||
| Issuance of warrants | $ | $ | ||||||
| Issuance of RSUs | $ | $ | ||||||
| Issuance of common stock for warrants that can be exercised per the Resale S-1/A | $ | $ | ||||||
| Issuance of pre-funded warrants | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements.
| F-6 |
TRIO PETROLEUM CORP.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2023 AND 2022
NOTE 1 - NATURE OF THE ORGANIZATION AND BUSINESS
Company Organization
Trio
Petroleum Corp. (“Trio Petroleum” or the “Company”) is an oil and gas exploration and development company headquartered
in Bakersfield, California, with operations in Monterey County, California. The Company was incorporated on July 19, 2021, under the
laws of Delaware to acquire, fund and develop oil exploration and production assets in California; it has no revenue-generating operations
as of the date of this filing. The Company was formed to acquire Trio Petroleum LLC’s (“Trio LLC”) approximate
Acquisition of South Salinas Project
On
September 14, 2021, the Company entered into a Purchase and Sale Agreement (“Trio LLC PSA”) with Trio LLC to acquire an
Initial Public Offering
The
Company’s Registration Statement (Amendment No. 9) on Form S-1/A was filed with the SEC on March 24, 2023; its Initial Public Offering
was declared effective on April 17, 2023 and closed on April 20, 2023 (collectively, the “Offering” or “IPO”).
The Company sold shares of its common stock for total gross proceeds of $
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and approval of any golden parachute payments not previously approved. Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
| F-7 |
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
Use of Estimates
The preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity-based transaction and disclosure of contingent assets and liabilities at the date of the financial statements, and the revenue and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statement, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Some of the more significant estimates required to be made by management include estimates of oil and natural gas reserves (when and if assigned) and related present value estimates of future net cash flows therefrom, the carrying value of oil and natural gas properties, accounts receivable, bad debt expense, ARO and the valuation of equity-based transactions. Accordingly, actual results could differ significantly from those estimates.
Cash and cash equivalents
The
Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents.
The Company had
Prepaid Expenses
Prepaid
expenses consist primarily of prepaid services which will be expensed as the services are provided within twelve months. As of October
31, 2023 and 2022, the balances of the prepaids account were $
Deferred Offering Costs
Deferred
offering costs consist of professional fees, filing, regulatory and other costs incurred through the balance sheet date that are directly
related to the planned IPO (see Note 4). As of October 31, 2023 and 2022, offering costs in the aggregate of $ and $
Debt Issuance Costs
Costs
incurred in connection with the issuance of the Company’s debt have been recorded as a direct reduction against the debt and amortized
over the life of the associated debt as a component of interest expense. As of October 31, 2023 and 2022, the Company recorded $
Oil and Gas Assets and Exploration Costs - Successful Efforts
The Company’s projects are in early development and/or exploration stages and it has not yet realized any revenues from its operations. It applies the successful efforts method of accounting for crude oil and natural gas properties. Under this method, exploration costs such as exploratory, geological, and geophysical costs, delay rentals and exploratory overhead are expensed as incurred. If an exploratory property provides evidence to justify potential development of reserves, drilling costs associated with the property are initially capitalized, or suspended, pending a determination as to whether a commercially sufficient quantity of proved reserves can be attributed to the area as a result of drilling. At the end of each quarter, management reviews the status of all suspended exploratory property costs considering ongoing exploration activities; in particular, whether the Company is making sufficient progress in its ongoing exploration and appraisal efforts. If management determines that future appraisal drilling or development activities are unlikely to occur, associated exploratory well costs are expensed.
Costs to acquire mineral interests in crude oil and/or natural gas properties, drill and equip exploratory wells that find proved reserves and drill and equip development wells are capitalized. Acquisition costs of unproved leaseholds are assessed for impairment during the holding period and transferred to proven crude oil and/or natural gas properties to the extent associated with successful exploration activities. Significant undeveloped leases are assessed individually for impairment, based on the Company’s current exploration plans, and a valuation allowance is provided if impairment is indicated. Capitalized costs from successful exploration and development activities associated with producing crude oil and/or natural gas leases, along with capitalized costs for support equipment and facilities, are amortized to expense using the unit-of-production method based on proved crude oil and/or natural gas reserves on a field-by-field basis, as estimated by qualified petroleum engineers. As of October 31, 2023 and 2022, all of the Company’s oil and gas properties were classified as unproved properties and were not subject to depreciation, depletion and amortization.
| F-8 |
Unproved oil and natural gas properties
Unproved oil and natural gas properties consist of costs incurred to acquire unproved leases. Unproved lease acquisition costs are capitalized until the lease expires or when the Company specifically identifies a lease that will revert to the lessor, at which time it charges the associated unproved lease acquisition costs to exploration costs.
Unproved oil and natural gas properties are not subject to amortization and are assessed periodically for impairment on a property-by-property basis based on remaining lease terms, drilling results or future plans to develop acreage. All of the Company’s natural gas properties were classified as unproved as of October 31, 2023 and 2022; see further discussion in Note 5.
Impairment of Other Long-lived Assets
The Company reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. The Company assesses the recoverability of the carrying value of the asset by estimating the future net undiscounted cash flows expected to result from the asset, including eventual disposition. If the future net undiscounted cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and estimated fair value. With regards to oil and gas properties, this assessment applies to proved properties.
As
of October 31, 2023 and 2022, the Company had
Asset Retirement Obligations
ARO consists of future plugging and abandonment expenses on oil and natural gas properties. In connection with the South Salinas Project acquisition described above, the Company acquired the plugging and abandonment liabilities associated with six non-producing wells. The fair value of the ARO was recorded as a liability in the period in which the wells were acquired with a corresponding increase in the carrying amount of oil and natural gas properties not subject to impairment. The Company plans to utilize the six wellbores acquired in the South Salinas Project acquisition in future exploration activities. The liability is accreted for the change in its present value each period based on the expected dates that the wellbores will be required to be plugged and abandoned. The capitalized cost of ARO is included in oil and gas properties and is a component of oil and gas property costs for purposes of impairment and, if proved reserves are found, such capitalized costs will be depreciated using the units-of-production method. The asset and liability are adjusted for changes resulting from revisions to the timing or the amount of the original estimate when deemed necessary. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized.
Components of the changes in ARO for the years ended October 31, 2022 and 2023 are shown below:
| ARO, ending balance - October 31, 2021 | $ | |||
| Accretion expense | ||||
| ARO, ending balance - October 31, 2022 | ||||
| Accretion expense | ||||
| ARO, ending balance - October 31, 2023 | ||||
| Less: ARO - current | ||||
| ARO, net of current portion - October 31, 2023 | $ |
| F-9 |
Related Parties
Related
parties are directly or indirectly related to the Company, through one or more intermediaries and are in control, controlled by, or under
common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate
families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls
or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might
be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. On September 14, 2021,
the Company acquired an
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company utilizes ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. The Company accounts for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax rates. A valuation allowance is recorded when it is “more likely than not” that a deferred tax asset will not be realized. At October 31, 2023 and 2022, the Company’s net deferred tax asset has been fully reserved.
For uncertain tax positions that meet a “more likely than not” threshold, the Company recognizes the benefit of uncertain tax positions in the financial statements. The Company’s practice is to recognize interest and penalties, if any, related to uncertain tax positions in income tax expense in the statements of operations when a determination is made that such expense is likely. The Company is subject to income tax examinations by major taxing authorities since inception.
Fair Value Measurements
The carrying values of financial instruments comprising cash and cash equivalents, payables, and notes payable-related party approximate fair values due to the short-term maturities of these instruments. The notes payable- related party is considered a level 3 measurement. As defined in ASC 820, Fair Value Measurements and Disclosures, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). This fair value measurement framework applies to both initial and subsequent measurement.
| Level 1: | Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. |
| Level 2: | Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. |
| Level 3: | Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. The significant unobservable inputs used in the fair value measurement for nonrecurring fair value measurements of long-lived assets include pricing models, discounted cash flow methodologies and similar techniques. |
| F-10 |
There are no assets or liabilities measured at fair value on a recurring basis. Assets and liabilities accounted for at fair value on a non-recurring basis in accordance with the fair value hierarchy include the initial allocation of the asset acquisition purchase price, including asset retirement obligations, the fair value of oil and natural gas properties and the assessment of impairment.
The fair value measurements and allocation of assets acquired are measured on a nonrecurring basis on the acquisition date using an income valuation technique based on inputs that are not observable in the market and therefore represent Level 3 inputs. Significant inputs used to determine the fair value include estimates of: (i) reserves; (ii) future commodity prices; (iii) operating and development costs; and (iv) a market-based weighted average cost of capital rate. The underlying commodity prices embedded in the Company’s estimated cash flows are the product of a process that begins with NYMEX forward curve pricing, adjusted for estimated location and quality differentials, as well as other factors that the Company’s management believes will impact realizable prices. These inputs require significant judgments and estimates by the Company’s management at the time of the valuation.
The fair value of additions to the asset retirement obligation liabilities is measured using valuation techniques consistent with the income approach, which converts future cash flows to a single discounted amount. Significant inputs to the valuation include: (i) estimated plug and abandonment cost per well for all oil and natural gas wells and for all disposal wells; (ii) estimated remaining life per well; (iii) future inflation factors; and (iv) the Company’s average credit-adjusted risk-free rate. These assumptions represent Level 3 inputs.
If the carrying amount of its proved oil and natural gas properties, which are assessed for impairment under ASC 360 - Property, Plant and Equipment, exceeds the estimated undiscounted future cash flows, the Company will adjust the carrying amount of the oil and natural gas properties to fair value. The fair value of its oil and natural gas properties is determined using valuation techniques consistent with the income and market approach. The factors used to determine fair value are subject to management’s judgment and expertise and include, but are not limited to, recent sales prices of comparable properties, the present value of future cash flows, net of estimated operating and development costs using estimates of proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures, and various discount rates commensurate with the risk and current market conditions associated with the expected cash flow projected. These assumptions represent Level 3 inputs.
Basic and diluted net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share is computed similar to basic loss per share, except the weighted average number of common shares outstanding are increased to include additional shares from the assumed exercise of share options, warrants and convertible notes, if dilutive.
As of October 31, | As of October 31, | |||||||
| 2023 | 2022 | |||||||
| Warrants (Note 9, Note 10) | (4) | (1) | ||||||
| Convertible Notes (Note 9, Note 10) | (2) | |||||||
| Commitment Shares (Note 9, Note 10) | (3) | |||||||
| Restricted stock units and shares (Note 6, Note 10) | (5) | |||||||
| Total potentially dilutive securities | ||||||||
| (1) | |
| (2) | |
| (3) | |
| (4) | |
| (5) |
| F-11 |
Environmental Expenditures
The operations of the Company have been, and may in the future be, affected from time to time to varying degree by changes in environmental regulations, including those for future reclamation and site restoration costs. Both the likelihood of new regulations and their overall effect upon the Company vary greatly and are not predictable. The Company’s policy is to meet or, if possible, surpass standards set by relevant legislation by application of technically proven and economically feasible measures.
Environmental expenditures that relate to ongoing environmental and reclamation programs are charged against earnings as incurred or capitalized and amortized depending on their future economic benefits. All of these types of expenditures incurred since inception have been charged against earnings due to the uncertainty of their future recoverability. Estimated future reclamation and site restoration costs, when the ultimate liability is reasonably determinable, are charged against earnings over the estimated remaining life of the related business operation, net of expected recoveries.
Recent Accounting Pronouncements
All recently issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.
Reclassification of Expenses
Certain amounts in the prior periods presented have been reclassified to the current period financial statement presentation. This reclassification has no effect on previously reported net income.
Subsequent Events
The Company evaluated all events and transactions that occurred after October 31, 2023 through the date of the filing of this report. See Note 11 for such events and transactions.
NOTE 3 - GOING CONCERN AND MANAGEMENT’S LIQUIDITY PLANS
As
of October 31, 2023, the Company had $
The
accompanying financial statements have been prepared on the basis that the Company will continue as a going concern over the next twelve
months from the date of issuance of these financial statements, which assumes the realization of assets and the satisfaction of liabilities
in the normal course of business. As of October 31, 2023, the Company has an accumulated deficit of $
Accordingly, the accompanying financial statements have been prepared in conformity with U.S. GAAP, which contemplates continuation of the Company as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| F-12 |
NOTE 4 - INITIAL PUBLIC OFFERING
The
Company’s Registration Statement (Amendment No. 9) on Form S-1/A was filed with the SEC on March 24, 2023; its Initial Public Offering
was declared effective on April 17, 2023 and closed on April 20, 2023 (collectively, the “Offering” or “IPO”).
The Company sold shares of common stock at a public offering price of $ per share for gross proceeds of $
NOTE 5 - OIL AND NATURAL GAS PROPERTIES
The following tables summarize the Company’s oil and gas activities.
As of October 31, | As of October 31, | |||||||
| 2023 | 2022 | |||||||
| Oil and gas properties - not subject to amortization | $ | $ | ||||||
| Accumulated impairment | ||||||||
| Oil and gas properties - not subject to amortization, net | $ | $ | ||||||
During
the years ended October 31, 2023 and 2022, the Company incurred aggregate exploration costs of $
Leases
As
of October 31, 2023, the Company holds various leases related to the unproved properties of the South Salinas Project (see Note 6 and
Note 7); two of the leases are held with the same lessor. The first lease, which covers
The
second lease covers
During
February and March of 2023, the Company entered into additional leases related to the unproved properties of the South Salinas Project
with two groups of lessors. The first group of leases covers
As
of October 31, 2023, the Company assessed the unproved properties of the South Salinas Project and those adjacent to it for impairment,
analyzing future drilling plans, leasehold expiration and the existence of any known dry holes in the area. The Company did not record
any impairment to the oil and gas property as of October 31, 2023, as all capitalized costs represent costs to acquire unproved property
leases pending further development on the balance sheet. There is
| F-13 |
Optioned Assets
On
December 22, 2022, the Company and Trio LLC entered into the Fourth Amendment to the Trio LLC PSA (see Note 6). Per the terms of the
Fourth Amendment, the Company was granted a 120-day option (commencing on January 1, 2023) to acquire any or all of the following three
assets currently owned in part by Trio LLC (the “Optioned Assets”). The price for this option was $
| ● | The
McCool Ranch Oil Field (Hangman Hollow Area) asset with an option to acquire Trio LLC’s | |
| ● | The
Kern Front Field asset with an option to acquire Trio LLC’s | |
| ● | The
Union Avenue Field with an option to acquire Trio LLC’s |
The
Optioned Assets are all located in California. In order to evaluate the Optioned Assets, the Company engaged KLS Petroleum Consulting,
LLC (“KLSP”) to perform detailed analyses and estimations of the oil and gas reserves and of the fair market values of each
of these three assets. These analyses have been completed, and as of October 31, 2023, the Company has paid approximately $
Union Avenue Field Agreement
On
May 12, 2023, the Company announced the signing of an Acquisition Agreement to potentially acquire up to
McCool Ranch Oil Field Asset Purchase
On
October 16, 2023, the Company entered into an agreement (“McCool Ranch Purchase Agreement”) with Trio LLC for purchase of
a
Additional Working Interest - South Salinas Project
In
April 2023, the Company paid Trio LLC approximately $
| F-14 |
NOTE 6 - RELATED PARTY TRANSACTIONS
South Salinas Project - Related Party
The
Company was originally formed to acquire Trio LLC’s working interest in the South Salinas Project, and subsequently partner with
certain members of Trio LLC’s management to develop and operate those assets (see Note 1, Note 5). Trio LLC operates the South
Salinas on behalf of the Company, and as operator, conducts and has full control of the operations and acts in the capacity of an independent
contractor. Trio LLC currently holds a
Optioned Assets with Related Party
On
December 22, 2022, the Company and Trio LLC entered into the Fourth Amendment to the Trio LLC PSA. Per the terms of the Fourth Amendment,
the Company was granted a 120-day option (commencing on January 1, 2023) to acquire any or all of the following three assets currently
owned in part by Trio LLC (the “Optioned Assets”). The price for this option was $
| ● | The
Hangman Hollow Field asset with an option to acquire Trio LLC’s | |
| ● | The
Kern Front Field asset with an option to acquire Trio LLC’s | |
| ● | The
Union Avenue Field with an option to acquire Trio LLC’s |
McCool Ranch Oil Field Asset Purchase - Related Party
On October 16, 2023, the Company entered into an agreement (“McCool Ranch Purchase Agreement”) with Trio
LLC for purchase of a
Additional Working Interest - South Salinas Project - Related Party
In
April 2023, the Company paid Trio LLC approximately $
Notes Payable - Related Party
On
September 14, 2021, the Company entered into a note payable with Trio LLC as part of the agreement for the purchase of an
| F-15 |
Restricted Stock Units (“RSUs”) issued to Directors
On
July 11, 2022, the Company issued shares of its $ par common stock to each of its five outside Directors with a fair value
of $ per share for an aggregate grant date value of $
On
September 2, 2023, the Company issued an aggregate shares of its $ par common stock to four outside directors with a fair
value of $ per share for a grant date value of $
Restricted Shares issued to Executives and Employees
In February 2022, the Company entered into employee agreements with Frank Ingriselli (Chief Executive Officer or “CEO”) and Greg Overholtzer (Chief Financial Officer or “CFO”) which, among other things, provided for the grant of restricted shares in the amounts of and , respectively, pursuant to the 2022 Equity Incentive Plan (“the Plan”). Per the terms of the employee agreements, subject to continued employment, the restricted shares vest over a two-year period, under which % will vest upon the earlier of three months after the IPO or six months after the grant date. After this date, the remainder vest in equal tranches every six months until fully vested. As the Plan was not adopted until October 17, 2022 (see Note 7), these shares will be recorded as of that date at a fair value of $ per share; such value was calculated via a third-party valuation performed using income and market methods, as well as a discounted cash flow method, with the terminal value using a market multiples method, adjusted for a lack of marketability (see Note 10). As of October 31, 2022, the Company recorded restricted shares at a fair value of $, and for the years ended October 31, 2023 and 2022, the Company recognized stock-based compensation of $ and $, respectively, within stock-based compensation expenses on the income statement, with unrecognized expense of $ as of October 31, 2023.
In
May 2023, the Company entered into six employee agreements which, among other things, provided for the grant of an aggregate of
restricted shares pursuant to the Plan. Per the terms of the employee agreements, subject to continued employment, the restricted shares
vest as follows: % of the shares will vest five months after the issuance date, after which the remainder vest in equal tranches every
six months until fully vested. The shares were recorded on the date of issuance at a fair value of $ per share for an aggregate fair
value of $
On
July 20, 2023, pursuant to the Ingriselli Employment Agreement (see above), the Company issued restricted shares (subject to
the Plan) as a discretionary annual bonus at a fair value of $ per share to Mr. Ingriselli for an aggregate fair value of $
On
October 16, 2023, the Company and Michael L. Peterson entered into an employment agreement (the “Peterson Employment Agreement”),
effective as of October 23, 2023, pursuant to which Mr. Peterson will serve as Chief Executive Officer of the Company, replacing Mr.
Ingriselli. Pursuant to the Peterson Employment Agreement, Mr. Peterson will be paid an annual base salary of $
Pursuant
to the Peterson Employment Agreement, the Company issued Mr. Peterson is a grant of shares of restricted stock pursuant to
the Company’s Omnibus Incentive Compensation Plan (the “Plan”) at a fair value of $ per share for a grant date
fair value of $
| F-16 |
Consulting Agreement - Related Party
On
October 6, 2023, Mr. Ingriselli delivered notice of his resignation as the Company’s Chief Executive Officer, effective on October
23, 2023. Upon his resignation, Mr. Ingriselli will continue as a director and hold the title of “Vice Chairman” of the Board
of Directors of the Company. In addition, on October 16, 2023, the Company and Global Venture Investments LLC (“Consultant”),
a Delaware Limited Liability Company and a wholly owned consulting firm owned
NOTE 7 - COMMITMENTS AND CONTINGENCIES
From time to time, the Company is subject to various claims that arise in the ordinary course of business. Management believes that any liability of the Company that may arise out of or with respect to these matters will not materially adversely affect the financial position, results of operations, or cash flows of the Company.
Unproved Property Leases
As
of October 31, 2023, the Company holds various leases related to the unproved properties of the South Salinas Project (see Note 5); two
of the leases are held with the same lessor. The first lease, which covers
The
second lease covers
During
February and March of 2023, the Company entered into additional leases related to the unproved properties of the South Salinas Project
with two groups of lessors. The first group of leases covers
As of October 31, 2023, the Company assessed the unproved properties of the South Salinas Project and those adjacent to it for impairment, analyzing future drilling plans, leasehold expiration and the existence of any known dry holes in the area. Management concluded there is no impairment allowance required as of the balance sheet date.
Board of Directors Compensation
On
July 11, 2022, the Company’s Board of Directors approved compensation for each of the non-employee directors of the Company, which
would be effective upon the consummation of the IPO. Such compensation is structured as follows: an annual retainer of $ cash plus
an additional $ for each Board committee upon which the Director serves, each paid quarterly in arrears. Payment for this approved
compensation commenced upon successful completion of the Company’s IPO and as of October 31, 2023, the Company has recognized $
| F-17 |
Agreements with Advisors
On
July 28, 2022, the Company entered into an agreement with Spartan Capital Securities, LLC (“Spartan”) whereby Spartan will
serve as the exclusive agent, advisor or underwriter in any offering of securities of the Company for the term of the agreement, which
is one year. The agreement provides for a $
On
April 20, 2023, pursuant to the agreement above, the Company issued representative warrants to Spartan to purchase up to an aggregate
of shares of common stock; these warrants may be exercised commencing from the closing of the Offering and expiring
Trio LLC - Monthly Consulting Fee
Pursuant
to the Fourth Amendment to the Trio LLC PSA, the Company agreed, retroactively commencing on May 1, 2022, to accrue a monthly consulting
fee of $
On May 1, 2023, the Company entered into six employment agreements with Trio LLC employees; the agreements provide for compensation and restricted shares pursuant to the Plan (see Note 10) with a start date of May 1, 2023, provided that each individual continues to serve as an employee of Trio LLC on a part-time basis.
NOTE 8 - INCOME TAXES
The Company accounts for income taxes under ASC 740-10, which provides for an asset and liability approach of accounting for income taxes. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences, using currently enacted tax laws, attributed to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts calculated for income tax purposes.
Significant components of the Company’s deferred tax assets are summarized below.
| As of October 31, | As of October 31, | |||||||
| 2023 | 2022 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carry forwards | $ | $ | ||||||
| Total deferred tax asset | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| $ | $ | |||||||
As
of October 31, 2023 and 2022, the Company had approximately $
| F-18 |
The
Company recorded a valuation allowance in the full amount of its net deferred tax assets since realization of such tax benefits has been
determined by the Company’s management to be less likely than not. The valuation allowance increased $
A reconciliation of the statutory federal income tax benefit to actual tax benefit is as follows:
| As of October 31, | As of October 31, | |||||||
| 2023 | 2022 | |||||||
| Federal statutory blended income tax rates | ( | )% | ( | )% | ||||
| State statutory income tax rate, net of federal benefit | % | % | ||||||
| Change in valuation allowance | % | % | ||||||
| Effective tax rate | % | % | ||||||
As of the date of this filing, the Company has not filed its 2023 federal and state corporate income tax returns. The Company expects to file these documents as soon as practicable.
The Company has evaluated its income tax positions and has determined that it does not have any uncertain tax positions. The Company will recognize interest and penalties related to any uncertain tax positions through its income tax expense.
NOTE 9 - NOTES PAYABLE
Notes payable as of October 31, 2023 and 2022 consisted of the following:
As of October 31, |
As of October 31, |
|||||||
| 2023 | 2022 | |||||||
| Notes payable - related party, net of discounts | $ | $ | ||||||
| Notes payable - investors, net of discounts | ||||||||
| Bridge note, net of discounts | ||||||||
| Convertible note, net of discounts | ||||||||
| Total Notes payable | $ | $ | ||||||
Notes Payable - Related Party
On
September 14, 2021, the Company entered into a note payable with Trio LLC as part of the agreement for the purchase of an
Notes Payable - Investors (January 2022 SPA)
On
January 28, 2022, the Company entered into the January 2022 SPA with GPL, pursuant to which (i) in exchange for $
| F-19 |
The
January 2022 Notes have a maturity date on the earlier of April 30, 2023 (such maturity date being extended initially from January 28,
2023 pursuant to the amendment to the January 2022 Notes signed on January 23, 2023 and again from February 28, 2023 pursuant to the
second amendment to the January 2022 Notes signed on February 23, 2023) or the IPO and bear interest at a rate of
Upon
consummation of its IPO, the Company converted the aggregate outstanding principal and accrued interest balances of $
Bridge Note
During
September 2022, the Company entered into an agreement or bridge note (“Bridge Note”) with three investors; the Bridge Note
includes original issue discount senior notes (“Notes”) with gross proceeds of $
The
Company also issued pre-funded warrants in connection with the Bridge Note to purchase a number of shares equal to the number of dollars
of the Notes, or
Upon
consummation of its IPO, the Company repaid the Bridge Note in the amount of $
Convertible note - investors (October 2023 SPA)
On
October 4, 2023, the Company entered into a securities purchase agreement (the “October 2023 SPA”) with an investor; the
October 2023 SPA provides for loans in an aggregate principal amount of up to $
| F-20 |
In
consideration for the investor’s funding of the first tranche, the Company issued and sold to the investor, in a private placement,
i) a senior secured convertible promissory note in the aggregate principal amount of $
Upon
the initial funding on October 4, 2023, the Company recorded gross proceeds of approximately $
Commencing
on the earlier of (i) the day that is the four months after October 4, 2023 and (ii) the date on which the first Resale Registration
Statement shall have been declared effective by the SEC, the Company is required to pay to the investor the outstanding principal balance
under the Note in monthly installments, on such date and each one (1) month anniversary thereof, in an amount equal to
As collateral for the obligations under the October 2023 SPA, the Company has granted to the investor a senior security interest in all of the Company’s assets (inclusive of intellectual property), subject to certain exceptions, as set forth in the Security Agreement (as defined in the October 2023 SPA). The Company has also entered into a Mortgage, Deed of Trust, Assignment of Production, Security Agreement and Financing Statement (the “Deed of Trust”) with the Investor granting to the Investor a security interest in certain oil and gas interests held by the Company in California (the “Deed of Trust”).
In
connection with the October 2023 SPA, on October 4, 2023, the Company entered into voting agreements (collectively, the “Voting
Agreements”) with certain Company stockholders, directors and officers, representing any aggregate of shares of Common
Stock, including Frank Ingriselli, the Company’s Chief Executive Officer, and a certain entity affiliated with Mr. Ingriselli.
Pursuant to the Voting Agreements, each stockholder party thereto has agreed to vote its shares of Common Stock to approve the issuance
of the securities under the Securities Purchase Agreement for the purpose of complying with the applicable NYSE/NYSE American Rules requiring
stockholder approval for the Company’s issuance of shares of Common Stock, in connection with the transactions contemplated under
the October 2023 SPA, in excess of
In connection with the October 2023 SPA, on October 4, 2023, the Company entered into a registration rights agreement (the “October 2023 RRA”) with the investor pursuant to which the Registrable Securities (as defined therein) held by the investor, subject to certain conditions, are entitled to registration under the Securities Act. Pursuant to October 2023 RRA, the Company is required to, within 30 days after the date thereof, and within 10 days after the Closing of the Second Tranche (as such term is defined in the October 2023 SPA), file with the SEC (at the Company’s sole cost and expense) a Resale Registration Statement and to cause such Resale Registration Statement to be effective within 60 days after the applicable filing date, covering the resale by the Investor of the Registrable Securities.
Under the terms of the October 2023 SPA, the October 2023 RRA and the Note, the Company is required to reserve and register shares of Common Stock in a Resale Registration Statement which such number represents % of the number of shares on the exercise of the Common Warrants and % of the number of shares upon the conversion of the Note.
| F-21 |
NOTE 10 - STOCKHOLDERS’ EQUITY
Common Shares
The Company is authorized to issue an aggregate of shares. The authorized capital stock is divided into: (i) shares of common stock having a par value of $ per share and (ii) shares of preferred stock having a par value of $ per share.
In
January 2022, the Company entered into the January 2022 SPA with GPL, which has warrants attached that are exercisable into up to
On
April 28, 2022, the Company issued shares of its $ par common stock at a price of $ per share for a total aggregate
fair value of $
On
July 11, 2022, the Company issued shares of its $ par common stock to each of its five outside Directors for a total aggregate
amount of
On
October 17, 2022, the Company issued restricted shares to two of its executives pursuant to the Plan. As the Plan was not adopted
until October 17, 2022, these shares were recorded as of that date at a fair value of $ per share; such value was calculated via
a third-party valuation performed using income and market methods, as well as a discounted cash flow method, with the terminal value
using a market multiples method, adjusted for a lack of marketability. As of October 31, 2022, the Company recorded restricted
shares at a fair value of $
In
December 2022, the Company entered into subscription agreements with two accredited investors for the aggregate issuance of common
shares for aggregate gross cash proceeds of $
In
April 2023, the Company consummated its IPO and sold shares of common stock at a public offering price of $ per share for
gross proceeds of $
In
April 2023, upon consummation of its IPO, the Company also issued commitment shares, the number of which was calculated by taking
On April 20, 2023, the Company issued shares of common stock at a fair value of $ per share to consultants in exchange for services rendered; the aggregate amount of $ was recorded as fees for professional services as of the end of the period.
On
May 1, 2023, the Company issued restricted shares to six of its employees pursuant to the Plan (see Note 6); the shares were
recorded at a fair value of $ per share for an aggregate grant date fair value of $
| F-22 |
On
May 2, 2023, June 23, 2023 and July 11, 2023, the Company issued , and shares of common stock, par value of $,
respectively, at a fair value of $, $ and $, respectively, to consultants in exchange for services rendered; the aggregate
amounts of $
On
June 30, 2023, the Company issued shares of common stock, par value of $, at a fair value of $ to Marcum, LLP for an
aggregate amount of $
On
June 30, 2023,
On
July 20, 2023, the Company issued restricted shares pursuant to the Plan to Mr. Ingriselli (see Note 6) at a fair value of $
per share for an aggregate fair value of $
On
September 2, 2023, the Company issued shares of its $ par common stock to four outside Directors with a fair value of $
per share for a grant date value of $
On
October 16, 2023, pursuant to the Peterson Employment Agreement, the Company issued Mr. Peterson is a grant of shares of restricted
stock pursuant to the Plan at a fair value of $ per share for a grant date fair value of $
Warrants
January 2022 SPA with GPL Warrants
In
January 2022, the Company entered into the January 2022 SPA with GPL, which had warrants attached that were exercisable into up to
Upon
consummation of the IPO, the Company issued an aggregate of
| F-23 |
To
assess for the change in relative fair value, the Company performed a Black Scholes Option Model calculation to quantify the fair value
of
On
September 20, 2023, the Company and the sixth GPL investor entered into an amendment to their particular warrant agreement, pursuant
to which the Company agreed to amend the warrant held by the holder in order to
The Company accounted for the amendments as warrant modifications, whereby the effect of the modifications is measured as the difference in relative fair value immediately before the modification and after the modification; and any increase to the relative fair value is recognized as equity issuance costs.
To
assess for the change in relative fair value, the Company performed a Black Scholes Option Model calculation to quantify the fair value
of
Other Warrants
In December 2022, the Company entered into subscription agreements with two accredited investors for the aggregate issuance of common shares, as well as warrants to purchase additional shares up to the initial subscription amount; the warrants are exercisable for two years and have an exercise price equal to fifty percent of the price per share the Company sells its common shares in its IPO. The warrants were determined to be equity classified and were recorded at fair value in additional paid-in capital on the balance sheet for the period. Their fair value was based on the price the third-party investors paid for the original subscription agreements described above.
The
Company also issued warrants to purchase
| F-24 |
A summary of the warrant activity during the years ended October 31, 2023 and 2022 is presented below:
Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Life in Years | Intrinsic Value | |||||||||||||
| Outstanding, November 1, 2021 | $ | $ | ||||||||||||||
| Issued | - | |||||||||||||||
| Outstanding, November 1, 2022 | ||||||||||||||||
| Issued | - | |||||||||||||||
| Exercised | ( | ) | - | |||||||||||||
| Cancelled | - | - | ||||||||||||||
| Expired | ( | ) | - | - | ||||||||||||
| Outstanding, October 31, 2023 | $ | $ | ||||||||||||||
| Exercisable, October 31, 2023 | $ | $ | ||||||||||||||
A summary of outstanding and exercisable warrants as of October 31, 2023 is presented below:
| Warrants Outstanding | Warrants Exercisable | |||||||||||||
| Weighted | ||||||||||||||
| Average | ||||||||||||||
| Exercise | Number of | Remaining | Number of | |||||||||||
| Price | Shares | Life in Years | Shares | |||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| F-25 |
Stock Options
Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Life in Years | Intrinsic Value | |||||||||||||
| Outstanding, November 1, 2021 | $ | $ | ||||||||||||||
| Issued | - | - | ||||||||||||||
| Outstanding, November 1, 2022 | ||||||||||||||||
| Issued | ||||||||||||||||
| Exercised | - | - | ||||||||||||||
| Cancelled | - | - | ||||||||||||||
| Expired | - | - | ||||||||||||||
| Outstanding, October 31, 2023 | $ | $ | ||||||||||||||
| Exercisable, October 31, 2023 | $ | $ | ||||||||||||||
| Options Outstanding | Options Exercisable | |||||||||||||
| Weighted | ||||||||||||||
| Average | ||||||||||||||
| Exercise | Number of | Remaining | Number of | |||||||||||
| Price | Shares | Life in Years | Shares | |||||||||||
| $ | ||||||||||||||
On August 15, 2023, the Company issued five-year options to purchase shares of the Company’s common stock to a consultant of the Company, pursuant to the Plan. The options have an exercise price of $ per share and vest monthly over a period of months, beginning on the vesting commencement date. The options have a grant date fair value of $, which will be recognized over the vesting term.
| Risk free interest rate | % | |
| Expected term (years) | ||
| Expected volatility | % | |
| Expected dividends | % |
| F-26 |
NOTE 11 - SUBSEQUENT EVENTS
In accordance with ASC 855 - Subsequent Events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events and transactions that occurred after October 31, 2023, through the date the financial statements were issued. Except for the following, there are no subsequent events identified that would require disclosure in the financial statements.
Resale Form S-1
On November 11, 2023, the Company filed a Form S-1 for the resale of i) up to shares of common stock issuable upon conversion of a senior secured convertible promissory note, ii) up to shares of common stock issuable upon exercise of a common warrant, and iii) up to shares of common stock issuable upon exercise of a placement agent warrant.
First Amendment to the Resales Form S-1
On December 6, 2023, the Company filed the first amendment to the Form S-1 filed with the SEC on November 3, 2023.
Asphalt Ridge Option Agreement and Amendment
On
November 10, 2023, the Company entered into a leasehold acquisition and development option agreement (“AR Agreement”) with
Heavy Sweet Oil LLC (“Heavy Sweet”) to purchase up to a % production share (“Asphalt Ridge Option”) in certain
leases in eastern Utah totaling 960 acres. The Asphalt Ridge Option has a term of nine months, through August 10, 2024, and gives the
Company the exclusive right, but not the obligation, to acquire up to a
On
December 29, 2023, the Company and Heavy Sweet entered into an Amendment to the AR Agreement (the “AR Amendment”), pursuant
to which the Company and Heavy Sweet amended the AR Agreement to provide that, within three business days of the effective date of the
AR Amendment, the Company would fund $
Amendment to October 2023 SPA and Second Tranche Financing
On
December 29, 2023, the Company and an investor entered into an Amendment to the October 2023 SPA (see Note 9), whereby in connection
with the closing of the second tranche, (i) the fixed conversion price of the convertible promissory note issued and (ii) the exercise
price of the warrant issued in connection with the second tranche were both reduced from $
On
January 2, 2024, the Company closed on the second tranche and received gross proceeds of $
| F-27 |