Except as otherwise indicated by the context, references in this Quarterly
Report to "we," "us," "our," or the "Company" are to the consolidated businesses
of Petro River Oil Corp. and its wholly-owned direct and indirect subsidiaries
and majority-owned subsidiaries, except that references to "our common stock" or
"our capital stock" or similar terms refer to the common stock, par value
$0.00001 per share ("common stock"), of Petro River Oil Corp., a Delaware
corporation (the "Company").
This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is designed to provide information that is supplemental to,
and should be read together with, the Company's consolidated financial
statements and the accompanying notes contained in this Quarterly Report on Form
10-Q (the "Quarterly Report"). Information in this Item 2 is intended to assist
the reader in obtaining an understanding of the consolidated financial
statements, the changes in certain key items in those financial statements from
quarter to quarter, the primary factors that accounted for those changes, and
any known trends or uncertainties that the Company is aware of that may have a
material effect on the Company's future performance, as well as how certain
accounting principles affect the consolidated financial statements. This
includes discussion of (i) Liquidity, (ii) Capital Resources, (iii) Results of
Operations, and (iv) Off-Balance Sheet Arrangements, and any other information
that would be necessary to an understanding of the Company's financial
condition, changes in financial condition and results of operations.
Forward Looking Statements
The following is management's discussion and analysis of certain significant
factors that have affected our financial position and operating results during
the periods included in the accompanying consolidated financial statements, as
well as information relating to the plans of our current management and should
be read in conjunction with the accompanying financial statements and their
related notes included in this Quarterly Report.
This Quarterly Report contains forward-looking statements. Generally, the words
"believes," "anticipates," "may," "will," "should," "expects," "intends,"
"estimates," "continues," and similar expressions or the negative thereof or
comparable terminology are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties, including the matters
set forth in this Quarterly Report or other reports or documents we file with
the Securities and Exchange Commission ("SEC") from time to time, which could
cause actual results or outcomes to differ materially from those projected.
Undue reliance should not be placed on these forward-looking statements, which
speak only as of the date hereof. We undertake no obligation to update these
forward-looking statements.
The following discussion of our financial condition and results of operations is
based upon and should be read in conjunction with our consolidated financial
statements and their related notes included in this Quarterly Report and our
Annual Report on Form 10-K for the year ended April 30, 2019, filed with the SEC
on August 13, 2019, as amended on August 14, 2019 and September 27, 2019.
Business Overview
Petro River Oil Corp. (the "Company", "we", "us" or "our") is an independent
energy company focused on the development of conventional oil and gas assets
with low discovery and development costs, utilizing modern technology. The
Company is currently focused on moving forward with drilling wells on several of
its properties owned directly and indirectly through its interest in Horizon
Energy Partners, LLC ("Horizon Energy"), and exploring additional opportunities
with Horizon Energy and other industry-leading partners. We are also exploring
various options to continue as a going concern, including asset sales, mergers,
and other options that would substantially reduce our operating and other costs,
including public company costs. SeeLiquidity and Capital Resources below.
The Company's core holdings are in the Mid-Continent Region in Oklahoma,
including in Osage County and Kay County, Oklahoma. Following the acquisition of
Horizon I Investments, LLC ("Horizon Investments") in December 2015, the Company
has additional exposure to a portfolio of domestic and international oil and gas
assets consisting of highly prospective conventional plays diversified across
project type, geographic location and risk profile, as well as access to a broad
network of industry leaders from Horizon Investment's interest in Horizon
Energy. Horizon Energy is an oil and gas exploration and development company
owned and managed by former senior oil and gas executives. It has a portfolio of
domestic and international assets. Each of the assets in the Horizon Energy
portfolio is characterized by low initial capital expenditure requirements and
strong risk reward characteristics.
The Company's prospects in Oklahoma are owned directly by the Company and
indirectly through Spyglass Energy Group, LLC ("Spyglass"), a wholly owned
subsidiary of Bandolier Energy, LLC ("Bandolier"). As of January 31, 2018,
Bandolier became wholly-owned by the Company. Bandolier has a 75% working
interest in an 87,754-acre concession in Osage County, Oklahoma. The remaining
25% working interest is held by the operator, Performance Energy, LLC.
-20-
Table of Contents
Effective September 24, 2018, the Company acquired a 66.67% membership interest
in LBE Partners, LLC, a Delaware limited liability company ("LBE Partners"),
from ICO Liquidating Trust, LLC, in exchange for 300,000 restricted shares of
the Company's common stock, $0.00001 par value ("common stock"). LBE Partners
has varying working interests in multiple oil and gas producing wells located in
Texas.
The execution of the Company's business plan is dependent on obtaining necessary
working capital. While no assurances can be given, in the event management is
able to obtain additional working capital, the Company plans to continue
drilling additional wells on its existing concessions. The Company also intends
to explore low-risk development drilling and work-over opportunities. Management
is also exploring farm-in and joint venture opportunities for the Company's oil
and gas assets, in addition to the options being considered by management to
substantially reduce operating expenses and continue as a going concern, as
disclosed under Liquidity and Capital Resources below.
Critical Accounting Policies and Estimates
The Company's significant accounting policies are described in Note 4 to the
annual consolidated financial statements for the years ended April 30, 2019 and
2018 on Form 10-K, filed with the SEC on August 13, 2019, as amended on August
14, 2019 and September 27, 2019, for the year ended April 30, 2019.
Our discussion and analysis of our financial condition and results of operations
is based upon our consolidated financial statements. These consolidated
financial statements are prepared in accordance with U.S. GAAP, which requires
us to make estimates and assumptions that affect the reported amounts of our
assets and liabilities and revenues and expenses, to disclose contingent assets
and liabilities on the date of the consolidated financial statements, and to
disclose the reported amounts of revenues and expenses incurred during the
financial reporting period. The most significant estimates and assumptions
include the valuation of accounts receivable, and the useful lives and
impairment of property and equipment, goodwill and intangible assets, the
valuation of deferred tax assets and inventories and the provision for income
taxes. We continue to evaluate these estimates and assumptions that we believe
to be reasonable under the circumstances. We rely on these evaluations as the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Since the use of estimates is
an integral component of the financial reporting process, actual results could
differ from those estimates. Some of our accounting policies require higher
degrees of judgment than others in their application. We believe critical
accounting policies as disclosed in this Quarterly Report reflect the more
significant judgments and estimates used in preparation of our consolidated
financial statements. We believe there have been no material changes to our
critical accounting policies and estimates.
The following critical accounting policies rely upon assumptions and estimates
and were used in the preparation of our consolidated financial statements:
Oil and Gas Operations
The Company follows the full-cost method of accounting for oil and gas
operations, whereby all costs related to exploration and development of oil and
gas reserves are capitalized. Under this method, the Company capitalizes all
acquisition, exploration and development costs incurred for the purpose of
finding oil and natural gas reserves, including salaries, benefits and other
internal costs directly attributable to these activities. Costs associated with
production and general corporate activities, however, are expensed in the period
incurred. Costs are capitalized on a country-by-country basis. To date, there
has only been one cost center, the United States.
The present value of estimated future net cash flows is computed by applying the
average first-day-of-the-month prices during the previous twelve-month period of
oil and natural gas to estimated future production of proved oil and natural gas
reserves as of year-end less estimated future expenditures to be incurred in
developing and producing the proved reserves and assuming continuation of
existing economic conditions. Prior to December 31, 2009, prices and costs used
to calculate future net cash flows were those as of the end of the appropriate
quarterly period.
Following the discovery of reserves and the commencement of production, the
Company will compute depletion of oil and natural gas properties using the
unit-of-production method based upon production and estimates of proved reserve
quantities. Costs associated with unproved properties are excluded from the
depletion calculation until it is determined whether or not proved reserves can
be assigned to such properties. Unproved properties are assessed for impairment
annually. Significant properties are assessed individually.
The Company assesses all items classified as unproved property on an annual
basis for possible impairment. The Company assesses properties on an individual
basis or as a group if properties are individually insignificant. The assessment
includes consideration of the following factors, among others: land
relinquishment; intent to drill; remaining lease term; geological and
geophysical evaluations; drilling results and activity; the assignment of proved
reserves; and the economic viability of development if proved reserves are
assigned. During any period in which these factors indicate impairment, the
related exploration costs incurred are transferred to the full cost pool and are
then subject to depletion and the ceiling limitations on development oil and
natural gas expenditures.
-21-
Table of Contents
Proceeds from the sale of oil and gas assets are applied against capitalized
costs, with no gain or loss recognized, unless a sale would alter the rate of
depletion and depreciation by 25% or more.
Significant changes in these factors could reduce our estimates of future net
proceeds and accordingly could result in an impairment of our oil and gas
assets. Management will perform annual assessments of the carrying amounts of
its oil and gas assets as additional data from ongoing exploration activities
becomes available.
Derivative Liabilities
The Company evaluates its options, warrants, convertible notes, or other
contracts, if any, to determine if those contracts or embedded components of
those contracts qualify as derivatives to be separately accounted for in
accordance with paragraph 815-10-05-4 and Section 815-40-25 of the FASB
Accounting Standards Codification. The result of this accounting treatment is
that the fair value of the embedded derivative is marked-to-market each balance
sheet date and recorded as either an asset or a liability. The change in fair
value is recorded in the consolidated statement of operations as other income or
expense. Upon conversion, exercise or cancellation of a derivative instrument,
the instrument is marked to fair value at the date of conversion, exercise or
cancellation and then the related fair value is reclassified to equity.
In circumstances where the embedded conversion option in a convertible
instrument is required to be bifurcated and there are also other embedded
derivative instruments in the convertible instrument that are required to be
bifurcated, the bifurcated derivative instruments are accounted for as a single,
compound derivative instrument.
The classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is re-assessed at the end of
each reporting period. Equity instruments that are initially classified as
equity that become subject to reclassification are reclassified to liability at
the fair value of the instrument on the reclassification date. Derivative
instrument liabilities will be classified in the balance sheet as current or
non-current based on whether or not net-cash settlement of the derivative
instrument is expected within 12 months of the balance sheet date.
The Company adopted Section 815-40-15 of the FASB Accounting Standards
Codification ("Section 815-40-15") to determine whether an instrument (or an
embedded feature) is indexed to the Company's own stock. Section 815-40-15
provides that an entity should use a two-step approach to evaluate whether an
equity-linked financial instrument (or embedded feature) is indexed to its own
stock, including evaluating the instrument's contingent exercise and settlement
provisions.
The Company utilizes a binomial option pricing model to compute the fair value
of the derivative liability and to mark to market the fair value of the
derivative at each balance sheet date. The Company records the change in the
fair value of the derivative as other income or expense in the consolidated
statements of operations.
Revenue Recognition
ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," supersedes the
revenue recognition requirements and industry-specific guidance under Revenue
Recognition (Topic 605). Topic 606 requires an entity to recognize revenue when
it transfers promised goods or services to customers in an amount that reflects
the consideration the entity expects to be entitled to in exchange for those
goods or services. The Company adopted Topic 606 on May 1, 2018, using the
modified retrospective method applied to contracts that were not completed as of
January 1, 2018. Under the modified retrospective method, prior period financial
positions and results will not be adjusted. Refer to Note 12 - Revenue from
Contracts with Customers for additional information.
The Company's revenue is comprised revenue from exploration and production
activities as well as royalty revenues related to a royalty interest agreement
executed in February 2018. The Company's oil is sold primarily to marketers,
gatherers, and refiners. Natural gas is sold primarily to interstate and
intrastate natural-gas pipelines, direct end-users, industrial users, local
distribution companies, and natural-gas marketers. NGLs are sold primarily to
direct end-users, refiners, and marketers. Payment is generally received from
the customer in the month following delivery.
Contracts with customers have varying terms, including spot sales or
month-to-month contracts, contracts with a finite term, and life-of-field
contracts where all production from a well or group of wells is sold to one or
more customers. The Company recognizes sales revenues for oil, natural gas, and
NGLs based on the amount of each product sold to a customer when control
transfers to the customer. Generally, control transfers at the time of delivery
to the customer at a pipeline interconnect, the tailgate of a processing
facility, or as a tanker lifting is completed. Revenue is measured based on the
contract price, which may be index-based or fixed, and may include adjustments
for market differentials and downstream costs incurred by the customer,
including gathering, transportation, and fuel costs.
Revenues are recognized for the sale of the Company's net share of production
volumes. Sales on behalf of other working interest owners and royalty interest
owners are not recognized as revenues.
-22-
Table of Contents
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU
No. 2016-02, "Leases (Topic 842)". The new lease guidance supersedes Topic 840.
The core principle of the guidance is that entities should recognize the assets
and liabilities that arise from leases. Topic 840 does not apply to leases to
explore for or use minerals, oil, natural gas and similar non-regenerative
resources, including the intangible right to explore for those natural
resources and rights to use the land in which those natural resources are
contained. In July 2018, the FASB issued ASU No. 2018-11, "Leases (Topic 842):
Targeted Improvements", which provides entities with an alternative modified
transition method to elect not to recast the comparative periods presented when
adopting Topic 842. The Company adopted Topic 842 as of May 1, 2019, using the
alternative modified transition method, for which, comparative periods,
including the disclosures related to those periods, are not restated.
In addition, the Company elected practical expedients provided by the new
standard whereby, the Company has elected to not reassess its prior conclusions
about lease identification, lease classification, and initial direct costs and
to retain off-balance sheet treatment of short-term leases (i.e., 12 months or
less and does not contain a purchase option that the Company is reasonably
certain to exercise). As a result of the short-term expedient election, the
Company has no leases that require the recording of a net lease asset and lease
liability on the Company's consolidated balance sheet or have a material impact
on consolidated earnings or cash flows as of October 31, 2019. Moving forward,
the Company will evaluate any new lease commitments for application of Topic
842.
In September 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit
Losses. ASU 2016-13 was issued to provide more decision-useful information about
the expected credit losses on financial instruments and changes the loss
impairment methodology. ASU 2016-13 is effective for reporting periods beginning
after December 15, 2019 using a modified retrospective adoption method. A
prospective transition approach is required for debt securities for which an
other-than-temporary impairment had been recognized before the effective date.
The Company is currently assessing the impact this accounting standard will have
on its financial statements and related disclosures.
In June 2018, the FASB issued Accounting Standards Update (ASU) No. 2018-07,
Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting. Under the new standard, companies will no longer
be required to value non-employee awards differently from employee awards.
Companies will value all equity classified awards at their grant-date under ASC
718 and forgo revaluing the award after the grant date. ASU 2018-07 is effective
for annual reporting periods beginning after December 15, 2018, including
interim reporting periods within that reporting period. Early adoption is
permitted, but no earlier than the Company's adoption date of Topic 606, Revenue
from Contracts with Customers(as described above under Revenue Recognition). The
Company adopted the standard during the quarter ended July 31, 3019 and the
adoption did not have an impact on the Company's consolidated financial
statements.
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic
820): Disclosure Framework -Changes to the Disclosure Requirements for Fair
Value Measurement". This update is to improve the effectiveness of disclosures
in the notes to the financial statements by facilitating clear communication of
the information required by U.S. GAAP that is most important to users of each
entity's financial statements. The amendments in this update apply to all
entities that are required, under existing U.S. GAAP, to make disclosures about
recurring or nonrecurring fair value measurements. The amendments in this update
are effective for all entities for fiscal years beginning after December 15,
2019, and interim periods within those fiscal years. The Company is currently
evaluating this guidance and the impact of this update on its consolidated
financial statements.
The Company does not expect the adoption of any other recently issued accounting
pronouncements to have a significant impact on its financial position, results
of operations, or cash flows.
Results of Operations
Results of Operations for the Three Months Ended October 31, 2019 Compared to
Three Months Ended October 31, 2018
Oil and Natural Gas Sales
During the three months ended October 31, 2019, the Company recognized $265,731
in oil and gas sales, compared to $410,432 for the three months ended October
31, 2018. The overall decrease in sales of $144,701 is primarily due an overall
reduction in production due to natural decline in production from existing
producing wells located in Osage County, Oklahoma, as well as lower market
prices.
We have listed below the total production volumes and total revenue net to the
Company for the three months ended October 31, 2019 and 2018.
For the Three Months For the Three Months
Ended Ended
October 31, 2019 October 31, 2018
Oil volume (BBL) 4,773 6,452
Gas volume (MCF) 6,038 6,669
Volume equivalent (BOE)(1) 5,779 7,564
Revenue $265,731 $410,432
(1) Assumes 6 Mcf of natural gas is equivalent to 1 barrel of oil.
-23-
Table of Contents
Royalty Revenue
In connection with the Purchase and Exchange Agreement dated February 14, 2018
between Petro River and Red Fork Resources ("Red Fork"), a subsidiary of Horizon
Energy, Petro River conveyed to Red Fork its 13.75% interest in the Mountain
View Project and received a 64.70% interest from Red Fork in a new project in
Kay County. Petro River also retained a 2% royalty interest in the membership
interest conveyed to Red Fork in the Mountain View Project. In relation to this
agreement, the Company recognized revenue of $5,161 and $0 during the three
months ended October 31, 2019 and 2018, respectively.
Lease Operating Expense
During the three months ended October 31, 2019, lease operating expense was
$107,429, compared to $109,059 for the three months ended October 31, 2018.
General and Administrative Expense
General and administrative expense for the three months ended October 31, 2019
was $340,811, compared to $407,355 for the three months ended October 31, 2018.
The decrease was primarily attributable to decreases in salaries and benefits
and office and administrative expenses. These changes are outlined below:
For the Three Months Ended For the Three Months Ended
October 31, 2019 October 31, 2018
Salaries and benefits $53,712 $107,413
Professional fees 212,592 208,942
Office and administrative 74,507 91,000
Total $340,811 $407,355
Salaries and benefits included non-cash stock-based compensation of $712 for
three months ended October 31, 2019, compared to $88,832 for the three months
ended October 31, 2018. The decrease in stock-based compensation of $88,120 from
the three months ended October 31, 2018 was due to fewer awards made during the
current period. General and administrative expense decreased due to management's
commitment to substantially reduce expense.
Other Income (Expense)
During the three months ended October 31, 2019, the Company recognized $0 of net
interest expense, compared to net interest expense of $297,746 for the three
months ended October 31, 2018. In addition, in relation to the debt
restructuring in January 2019, during the three months ended October 31, 2019,
the Company recognized a gain of $1,007,069 related to the change in fair value
of its derivative liabilities. During the three months ended October 31, 2018,
the net interest expense for the three months ended October 31, 2018 included
$174,307 and $123,439, which were the accretion of the debt discount and
interest expense, respectively, related to the June 2017 $2.0 million and
November 2017 $2.5 million Secured Note financings. In addition, during the
three months ended October 31, 2018, the Company recognized $75,000 of expense
from a legal settlement.
Results of Operations for the Six Months Ended October 31, 2019 Compared to Six
Months Ended October 31, 2018
Oil Sales
During the six months ended October 31, 2019, the Company recognized $584,952 in
oil and gas sales, compared to $984,497 for the six months ended October 31,
2018. The overall decrease in sales of $399,545 is primarily due an overall
reduction in production due to natural decline in production from existing
producing wells located in Osage County, Oklahoma, as well as lower market
prices.
-24-
Table of Contents
We have listed below the total production volumes and total revenue net to the
Company for the six months ended October 31, 2019 and 2018.
For the Six Months Ended For the Six Months Ended
October 31, 2019 October 31, 2018
Oil volume (BBL) 10,670 14,866
Gas volume (MCF) 12,984 7,432
Volume equivalent (BOE)(1) 12,834 16,105
Revenue $584,952 $984,497
(1) Assumes 6 Mcf of natural gas is equivalent to 1 barrel of oil.
Royalty Revenue
In connection with the Purchase and Exchange Agreement dated February 14, 2018
between Petro River and Red Fork Resources ("Red Fork"), a subsidiary of Horizon
Energy, Petro River conveyed to Red Fork its 13.75% interest in the Mountain
View Project and received a 64.70% interest from Red Fork in a new project in
Kay County. Petro River also retained a 2% royalty interest in the membership
interest conveyed to Red Fork in the Mountain View Project. In relation to this
agreement, the Company recognized revenue of $8,399 and $0 during the six months
ended October 31, 2019 and 2018, respectively.
Lease Operating Expense
During the six months ended October 31, 2019, lease operating expense was
$364,745, compared to $186,671 for the six months ended October 31, 2018. The
overall increase in lease operating expense was primarily attributable to
increased activity in the Company's drilling activity in Osage County, Oklahoma
and acquisition of LBE Partners.
General and Administrative Expense
General and administrative expense for the six months ended October 31, 2019 was
$659,089, compared to $913,912 for the six months ended October 31, 2018. The
decrease was primarily attributable to decreases in salaries and administrative
expenses. These changes are outlined below:
For the Six Months Ended For the Six Months Ended
October 31, 2019 October 31, 2018
Salaries and benefits $134,484 $390,897
Professional fees 391,412 348,562
Office and administrative 133,193 174,453
Total $659,089 $913,912
Salaries and benefits include non-cash stock-based compensation of $28,984 for
six months ended October 31, 2019, compared to $334,816 for the six months ended
October 31, 2018. The decrease in stock-based compensation of $305,832 from the
six months ended October 31, 2018, was due to fewer awards made during the
current period. General and administrative expenses decreaseddue to management's
commitment to substantially reduce expenses.
Other Income (Expense)
During the six months ended October 31, 2019, the Company recognized $624 of net
interest expense, compared to interest income of $617,326 for the six months
ended October 31, 2018. In addition, in relation to the debt restructuring in
January 2019, during the six months ended October 31, 2019, the Company
recognized a gain of $2,908,154 related to the change in fair value of its
derivative liabilities. The interest expense for the six months ended October
31, 2018 included $330,506 and $286,820, which were the accretion of the debt
discount and interest expense, respectively, related to the June 2017 $2.0
million and November 2017 $2.5 million Secured Note financings. In addition,
during the three months ended October 31, 2018, the Company recognized $75,000
of expense from a legal settlement.
-25-
Table of Contents
Liquidity and Capital Resources
At October 31, 2019, the Company had working capital deficit of $276,581,
consisting of $877,764 of current assets and $1,154,345 of current liabilities.
As a result of the utilization of cash in its operating activities, and the
development of its assets, the Company has incurred losses since it commenced
operations. In addition, the Company has a limited operating history. At
October 31, 2019, the Company had cash and cash equivalents of approximately
$754,000. The Company's primary source of operating funds since inception has
been equity and note financings, as well as through the consummation of the
Horizon Acquisition.
On January 31, 2019, the Company consummated the Series A Financing, pursuant to
which the Company sold and issued an aggregate of 178,101 Units, for an
aggregate purchase price of $3,562,015, to certain accredited investors pursuant
to an SPA and to certain debtholders pursuant to Debt Conversion Agreements,
resulting in net cash proceeds to the Company of approximately $2.7 million and
the termination of the Cohen Loan Agreement, as defined below, and debt owed to
Fortis. In addition, on January 31, 2019, the Company entered into the Secured
Debt Conversion Agreements, pursuant to which Funding Corp. and Funding Corp. II
converted all outstanding debt due to them under the June 2017 Secured Note and
November 2017 Secured Note, together amounting to an aggregate of approximately
$5.1 million, into shares of Series A Preferred Stock. As a result, the Company
increased its current assets and decreased its current liabilities
significantly.
On June 18, 2018, the Company entered into a Loan Agreement with Scot Cohen (the
"Cohen Loan Agreement"), the Company's Executive Chairman, pursuant to which Mr.
Cohen loaned the Company $300,000 at a 10% annual interest rate due September
30, 2018. On December 17, 2018, the maturity date of the Cohen Loan Agreement
was extended to March 31, 2019. As noted above, the Cohen Loan Agreement was
terminated on January 31, 2019 in exchange for the issuance of units, consisting
of 15,000 shares of Series A Preferred Stock and warrants to purchase 750,000
shares of Company common stock sold and issued in the Series A Financing.
In June and November 2017, the Company consummated the Secured Note financings
for an aggregate of $4.5 million, which Secured Notes accrued interest at a rate
of 10% per annum and were scheduled to mature on June 13, 2020. On May 17, 2018,
the parties executed an extension of the due date of the first interest payment
due pursuant to each of the Secured Notes from June 1, 2018 to December 31,
2018. As consideration for the interest payment extension, the Company agreed to
pay the holders an additional 10% of the interest due on June 1, 2018
on December 31, 2018. On December 17, 2018, the parties executed a second
extension of the due date of the first interest payment due pursuant to each of
the Secured Notes from December 31, 2018 to March 31, 2019. As a result of the
Series A Financing discussed above, the outstanding balances of the Secured
Notes were converted into shares of Series A Preferred Stock.
The current level of working capital, along with results from operations, are
insufficient to maintain current operations as well as the planned added
operations for the next 12 months. As a result, management is focused on
limiting operating expenses, deferring certain development activity, and
exploring farm-in and joint venture opportunities for the Company's oil and gas
assets. In addition, management is currently exploring various options to
substantially reduce operating expenses and maximize the value of its assets,
including its interest in Bandolier and Horizon Energy. Such options include,
but are not limited to, asset sales, mergers, voluntarily terminating and/or
suspending our statutory reporting obligations under the Securities Exchange Act
of 1934, as amended, and other options that would allow the Company to continue
as a going concern. No assurances can be given that management will be
successful. In addition, Management may raise additional capital through debt
and equity instruments in order to execute its business, operating and
development plans. Management can provide no assurances that the Company will be
successful in its capital raising or other efforts to continue as a going
concern.
Operating Activities
During the six months ended October 31, 2019, cash used in operating activities
was $190,802, compared to $239,401 used in operating activities during the six
months ended October 31, 2018. The Company incurred net income during the six
months ended October 31, 2019 of $2,281,570, compared to a net loss of $995,708
for the six months ended October 31, 2018. For the six months ended October 31,
2019, the net income was offset by non-cash items such as stock-based
compensation, depreciation, depletion and accretion of asset retirement
obligation and the change in the fair value of derivative liabilities. Cash used
in operations was also influenced by changes in accounts receivable, prepaid
expense and accounts payable and accrued expense.For the six months ended
October 31, 2018, the net loss was offset by non-cash items such as stock-based
compensation, depreciation, depletion and accretion of asset retirement
obligation and accretion of debt discount. Cash used in operations was also
influenced by changes in accounts receivable, prepaid expense and accounts
payable and accrued expense.
-26-
Table of Contents
Investing Activities
Investing activities during the six months ended October 31, 2019 resulted in
cash used of $392,199, compared to cash used of $306,723 during the six months
ended October 31, 2018. During the six months ended October 31, 2019, the
Company incurred $392,199 of expenditures for the development of oil and gas
assets, compared to $445,409 for the six months ended October 31, 2018. During
the six months ended October 31, 2018, the Company received cash of $138,686
from the acquisition of LBE Partners.
Financing Activities
Financing activities during the six months ended October 31, 2019 resulted in
cash provided of $0, compared to cash provided of $600,000 during the six months
ended October 31, 2018.
Capitalization
The number of outstanding shares of the Company's common stock and the number of
shares that could be issued if all common stock equivalents are converted to
shares was as follows:
October 31, October 31,
2019 2018
As of
Convertible preferred shares 21,520,153 -
Common shares 18,188,540 17,938,540
Stock options 2,580,885 2,607,385
Stock purchase warrants 11,128,706 2,223,669
53,418,284 22,769,594
Off-Balance Sheet Arrangements
None.
© Edgar Online, source Glimpses