NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1
|
ACCOUNTING POLICIES AND ESTIMATES
|
The accompanying unaudited condensed
financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”)
for interim financial information with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, these unaudited
condensed financial statements do not include all of the information and disclosures required by U.S. GAAP for complete financial
statements. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments (consisting
only of normal recurring adjustments), which we consider necessary, for a fair presentation of those financial statements. The
results of operations and cash flows for the three months ended March 31, 2017 may not necessarily be indicative of results that
may be expected for any succeeding quarter or for the entire fiscal year. The information contained in this quarterly report on
Form 10-Q should be read in conjunction with our audited financial statements included in our annual report on Form 10-K as of
and for the year ended December 31, 2016 as filed with the Securities and Exchange Commission (the “SEC”).
Significant accounting policies
are described in Note 2 to the consolidated financial statements included in Item 8 of our annual report on Form 10-K as of December
31, 2016.
The preparation of unaudited
consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions, which are
evaluated on an ongoing basis, that affect the amounts reported in the unaudited consolidated financial statements and accompanying
notes. Management bases its estimates on historical experience and on various other assumptions that it believes are reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
and the amounts of revenues and expenses that are not readily apparent from other sources. Actual results could differ from those
estimates and judgments. In particular, significant estimates and judgments include those related to: the estimated useful lives
for plant and equipment, the fair value of warrants and stock options granted for services or compensation, estimates of the probability
and potential magnitude of contingent liabilities, derivative liabilities, the valuation allowance for deferred tax assets due
to continuing operating losses, those related to revenue recognition and the allowance for doubtful accounts.
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 unaudited consolidated financial statements, which management considered
in formulating its estimate could change in the near-term due to one or more future confirming events. Accordingly, the actual
results could differ significantly from our estimates.
All amounts referred to in the
notes to the unaudited consolidated financial statements are in United States Dollars ($) unless stated otherwise.
|
b)
|
Principles of Consolidation
|
The unaudited consolidated financial
statements include the financial statements of the Company and its subsidiaries in which it has a majority voting interest. All
significant inter-company accounts and transactions have been eliminated in the unaudited consolidated financial statements. The
entities included in these unaudited consolidated financial statements are as follows:
Pledge Petroleum Corp (formerly
Propell Technologies Group, Inc.) – Parent Company
Novas Energy USA Inc. (wholly
owned)
Novas Energy North America,
LLC (60% owned) – Discontinued operation.
PLEDGE PETROLEUM CORP.
(formerly Propell Technologies Group,
Inc.)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1
|
ACCOUNTING POLICIES AND ESTIMATES (continued)
|
|
c)
|
Recent Accounting Pronouncements
|
In March 2017, the FASB issued
ASU 2017-07, Compensation-Retirement Benefits (Topic 715). This Update is being issued primarily to improve the presentation of
net periodic pension cost and net periodic postretirement benefit cost. This Update also includes amendments to the Overview and
Background Sections of the FASB Accounting Standards Codification. Under generally accepted accounting principles (GAAP), defined
benefit pension cost and postretirement benefit cost (net benefit cost) comprise several components that reflect different aspects
of an employer’s financial arrangements as well as the cost of benefits provided to employees. Those components are aggregated
for reporting in the financial statements. The amendments in this Update apply to all employers, including not-for-profit entities,
that offer to their employees defined benefit pension plans, other postretirement benefit plans, or other types of benefits accounted
for under Topic 715. The amendments in this Update require that an employer disaggregate the service cost component from the other
components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component and
the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost
to be eligible for capitalization. The amendments in this Update are effective for public business entities for annual periods
beginning after December 15, 2017, including interim periods within those 3 annual periods. For other entities, the amendments
in this Update are effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning
after December 15, 2019. Early adoption is permitted as of the beginning of an annual period for which financial statements have
not been issued or made available for issuance. The amendments in this Update should be applied retrospectively for the presentation
of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost
in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component
of net periodic pension cost and net periodic postretirement benefit in assets. We are currently evaluating the effect ASU 2017-07
will have on our consolidated financial statements.
In March 2017, the FASB issued
ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20) Premium Amortization of Purchased Callable
Debt Securities. The amendments in this Update affect all entities that hold investments in callable debt securities that have
an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date (that is, at a premium).
The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically,
the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change
for securities held at a discount; the discount continues to be amortized to maturity. Under current GAAP, premiums and discounts
on callable debt securities generally are amortized to the maturity date. The amendments in this Update more closely align the
amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities. As a
result, the amendments more closely align interest income recorded on bonds held at a premium or a discount with the economics
of the underlying instrument. For public business entities, the amendments in this Update are effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments are effective for
fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early
adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period,
any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity should
apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained
earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures
about a change in accounting principle. We are currently evaluating the effect ASU 2017-08 will have on our consolidated financial
statements.
PLEDGE PETROLEUM CORP.
(formerly Propell Technologies Group,
Inc.)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1
|
ACCOUNTING POLICIES AND ESTIMATES (continued)
|
|
c)
|
Recent Accounting Pronouncements (continued)
|
In May 2017, the FASB issued
Accounting Standards Update No. (“ASU’’) 2017-09, Compensation – Stock Compensation, an amendment to Topic
718. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award
require an entity to apply modification accounting in Topic 718. 2. An entity should account for the effects of a modification
unless all the following are met:
|
1.
|
The fair value (or calculated
value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value
(or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately
before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the
entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification.
|
|
2.
|
The vesting conditions
of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified.
|
|
3.
|
The classification of
the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately
before the original award is modified.
|
The current disclosure requirements
in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in this Update.
The amendments in this Update are effective for all entities for annual periods beginning after December 15,2017. Early adoption
is permitted and should be applied prospectively to an award modified on or after the adoption date. The amendments proposed in
this ASU are not expected to have a material impact on our consolidated financial statements.
In May 2017, the FASB issued
ASU 2017-10, service concession arrangements, an amendment to Topic 853. Topic 853 provides guidance for operating entities when
they enter into a service concession arrangement with a public-sector grantor who both:
|
1.
|
Controls or has the ability
to modify or approve the services that the operating entity must provide with the infrastructure, to whom it must provide them,
and at what price
|
|
2.
|
Controls, through ownership,
beneficial entitlement, or otherwise, any residual interest in the infrastructure at the end of the term of the arrangement.
|
In a service concession arrangement
within the scope of Topic 853, the operating entity should not account for the infrastructure as a lease or as property, plant,
and equipment. An operating entity should refer to other Topics to account for various aspects of a service concession arrangement.
For example, an operating entity should account for revenue relating to construction, upgrade, or operation services in accordance
with Topic 605, Revenue Recognition, or Topic 606, Revenue from Contracts with Customers.
The amendments in this Update
apply to the accounting by operating entities for service concession arrangements within the scope of Topic 853. These updates
are effective when the Company adopts the updates to Topic 606. The amendments proposed in this ASU are not expected to have an
impact on our consolidated financial statements.
Any new accounting standards,
not disclosed above, that have been issued or proposed by FASB that do not require adoption until a future date are not expected
to have a material impact on the financial statements upon adoption.
PLEDGE PETROLEUM CORP.
(formerly Propell Technologies Group,
Inc.)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1
|
ACCOUNTING POLICIES AND ESTIMATES (continued)
|
The preparation of unaudited
consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions, which are
evaluated on an ongoing basis, that affect the amounts reported in the unaudited consolidated financial statements and accompanying
notes. Management bases its estimates on historical experience and on various other assumptions that it believes are reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
and the amounts of revenues and expenses that are not readily apparent from other sources. Actual results could differ from those
estimates and judgments. In particular, significant estimates and judgments include those related to: the estimated useful lives
for plant and equipment, the fair value of warrants and stock options granted for services or compensation, estimates of the probability
and potential magnitude of contingent liabilities, derivative liabilities, the valuation allowance for deferred tax assets due
to continuing operating losses, those related to revenue recognition and the allowance for doubtful accounts.
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 unaudited consolidated financial statements, which management considered
in formulating its estimate could change in the near-term due to one or more future confirming events. Accordingly, the actual
results could differ significantly from our estimates.
Certain conditions may exist
as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when
one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities, and such
assessment inherently involves an exercise of judgment.
If the assessment of a contingency
indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the
estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential
material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of
the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.
Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case
the guarantee would be disclosed.
|
f)
|
Cash and Cash Equivalents
|
The Company considers all highly
liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. At March 31,
2017 and December 31, 2016, respectively, the Company had no cash equivalents.
The Company assesses credit
risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times
may exceed federally insured limits. At March 31, 2017, the Company had cash balances of $8,915,637, which exceeded the federally
insured limits by $8,641,145.
PLEDGE PETROLEUM CORP.
(formerly Propell Technologies Group,
Inc.)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1
|
ACCOUNTING POLICIES AND ESTIMATES (continued)
|
Parties are considered to be
related to the Company if the parties that, directly or indirectly, through one or more intermediaries, control, are controlled
by, or are under common control with the Company, or own in aggregate, on a fully diluted basis 5% or more of the Company’s
stock. 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 shall disclose all related party transactions. All transactions shall
be recorded at fair value of the goods or services exchanged. Property purchased from a related party is recorded at the cost to
the related party and any payment to or on behalf of the related party in excess of the cost is reflected as a distribution to
related party.
Certain reclassifications have
been made to the prior year financial statement numbers to conform to the current presentation of the financial statements.
The Company has cash balances
of $8,915,637 as of March 31, 2017, which is sufficient to meet current expenses for at least the next twelve month period, however
the Board of Directors are considering various options as to the future direction of the Company, including the possible sale of
its technology and PPT assets. The Company formed a special committee to investigate a possible share buyback of the majority stockholder,
Ervington Investments, and/or a possible sale of the assets of the Company.
Due to uncertainties surrounding
the Company’s liabilities and whether it is able to realize the full value of its assets, the Company cannot make any assurances
regarding the amount available for distribution to its stockholders.
The Company has made certain
projections relating to the amount of cash it expects to have to distribute to its stockholders upon dissolution of the Company.
These projections generally relate to the amount of liabilities which must be satisfied before the Company is dissolved, the amount
its preferred stockholders is expected to receive for their equity interest. The above projections are subject to multiple variables,
including the timing of a dissolution affecting the amount of dividends payable and the amount of liabilities owed at the time
of dissolution. Based upon current estimates, if the Company were to dissolve this quarter, no assurance can be given that common
stockholders or subordinate preferred stockholders will receive any such distribution.
3
|
DISCONTINUED OPERATIONS
|
On October 4, 2016, Novas Energy
USA, Inc. (“Novas USA”), a wholly owned subsidiary of the Company, delivered a notice to Technovita Technologies USA,
Inc. (“Technovita”) electing to dissolve its joint venture with Technovita (the “Joint Venture”), effective
November 1, 2016, pursuant to Section 11.1(b) of the Operating Agreement of Novas Energy North America, LLC (“NENA”),
dated October 22, 2015 (the “Operating Agreement”), by and among Novas USA and Technovita.
PLEDGE PETROLEUM CORP.
(formerly Propell Technologies Group,
Inc.)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
3
|
DISCONTINUED OPERATIONS (continued)
|
The assets and liabilities of
discontinued operations as of March 31, 2017 and December 31, 2016, respectively is as follows:
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
19,480
|
|
|
$
|
19,480
|
|
Accounts receivable, net
|
|
|
61,661
|
|
|
|
61,661
|
|
Prepaid expenses and other current assets
|
|
|
29,896
|
|
|
|
29,896
|
|
Total current assets
|
|
|
111,037
|
|
|
|
111,037
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
Plant and equipment, net
|
|
|
6,480
|
|
|
|
6,480
|
|
Total assets
|
|
|
117,517
|
|
|
|
117,517
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
94,784
|
|
|
|
94,784
|
|
Related party payables
|
|
|
932,478
|
|
|
|
932,478
|
|
Accrued liabilities and other payables
|
|
|
115,971
|
|
|
|
115,971
|
|
Total liabilities
|
|
|
1,143,233
|
|
|
|
1,143,233
|
|
Discontinued operations
|
|
$
|
1,025,716
|
|
|
$
|
1,025,716
|
|
Loss from discontinued operations
is as follows:
|
|
Three months
ended
March 31,
2017
|
|
|
Three months
ended
March 31,
2016
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
-
|
|
|
$
|
82,237
|
|
Cost of goods sold
|
|
|
-
|
|
|
|
110,047
|
|
Gross loss
|
|
|
-
|
|
|
|
(27,810
|
)
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
-
|
|
|
|
631
|
|
Professional fees
|
|
|
-
|
|
|
|
15,126
|
|
Business development
|
|
|
-
|
|
|
|
145,319
|
|
Consulting fees
|
|
|
-
|
|
|
|
343,319
|
|
General and administrative expenses
|
|
|
-
|
|
|
|
131,352
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
326
|
|
Total expense
|
|
|
-
|
|
|
|
636,073
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
-
|
|
|
|
(663,883
|
)
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
-
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
$
|
-
|
|
|
$
|
(663,873
|
)
|
PLEDGE PETROLEUM CORP.
(formerly Propell Technologies Group,
Inc.)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Prepaid expenses consisted of the following:
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
Prepaid insurance
|
|
$
|
38,763
|
|
|
$
|
22,607
|
|
Prepaid professional fees
|
|
|
10,833
|
|
|
|
3,333
|
|
|
|
$
|
49,596
|
|
|
$
|
25,940
|
|
Plant and Equipment consisted of the following:
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
|
Cost
|
|
|
Amortization
and Impairment
|
|
|
Net book value
|
|
|
Net book value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plasma pulse tool
|
|
|
945,423
|
|
|
|
(945,423
|
)
|
|
|
-
|
|
|
|
-
|
|
Furniture and equipment
|
|
|
6,700
|
|
|
|
(1,452
|
)
|
|
|
5,248
|
|
|
|
5,583
|
|
Field equipment
|
|
|
19,627
|
|
|
|
(19,578
|
)
|
|
|
49
|
|
|
|
341
|
|
Computer equipment
|
|
|
11,130
|
|
|
|
(3,656
|
)
|
|
|
7,474
|
|
|
|
8,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
982,880
|
|
|
|
(970,109
|
)
|
|
$
|
12,771
|
|
|
$
|
14,326
|
|
Depreciation expense was $1,555
and $16,914 for the three months ended March 31, 2017 and 2016, respectively.
Licenses
Novas licenses the “Plasma-Pulse
Technology” (“the Technology”) from Novas Energy Group Limited, the Licensor, pursuant to the terms of an exclusive
perpetual royalty bearing license it entered into in January 2013, which was amended during March 2014.
On July 19, 2016, we received
a notice from Licensor purporting to effectively terminate the License Agreement for non-payment of required royalties, asserting,
among other things, that as of June 30, 2016, Novas owed Licensor a pro rata amount of $1,458,333 for the Licensed Plasma Pulse
Technology for the United States and Mexico, of which $1,000,000 was alleged to be in arrears. Novas has recently been contacted
by Licensor with a request for settlement discussions; however, there can be no assurance that such discussions will occur or what
the outcome of any such discussions will be. The Company and Novas believe that there is no legal basis for Licensor to terminate
the License Agreement and intend to vigorously defend against any attempt by Licensor to enforce a termination of the License Agreement.
Further, we believe that Licensor has failed to materially perform its obligations under the License Agreement, and that such failures
on Licensor’s part may impact what, if any, payments are due under the License Agreement by Novas to Licensor.
PLEDGE PETROLEUM CORP.
(formerly Propell Technologies Group,
Inc.)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
6
|
INTANGIBLES (continued)
|
On October 4, 2016, Novas Energy
USA, Inc. (“Novas USA”), a wholly owned subsidiary of the Company, delivered a notice to Technovita Technologies USA,
Inc. (“Technovita”) electing to dissolve its joint venture with Technovita (the “Joint Venture”), effective
November 1, 2016, pursuant to Section 11.1(b) of the Operating Agreement of Novas Energy North America, LLC (“NENA”),
dated October 22, 2015 (the “Operating Agreement”), by and among Novas USA and Technovita.
Pursuant to the Operating Agreement,
Novas USA had entered into a sublicense agreement (the “Novas Sublicense Agreement”) with NENA and Novas Energy Group
Limited for NENA to be the exclusive provider of Plasma Pulse Technology for treatment of vertical wells to third parties in the
United States. The Sublicense Agreement was terminated upon termination of the Joint Venture.
Intangibles consisted of the following:
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
|
Cost
|
|
|
Amortization
and Impairment
|
|
|
Net book value
|
|
|
Net book value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License agreements
|
|
$
|
350,000
|
|
|
$
|
(350,000
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
Website development
|
|
|
8,000
|
|
|
|
(8,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
358,000
|
|
|
$
|
(358,000
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
Amortization expense was $0 and
$17,500 for the three months ended March 31, 2017 and 2016, respectively.
7
|
ACCRUED LIABILITIES AND OTHER PAYABLES
|
Accrued liabilities consisted of the following:
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
Royalties payable
|
|
$
|
14,653
|
|
|
$
|
14,653
|
|
Severance accrual
|
|
|
-
|
|
|
|
19,814
|
|
|
|
$
|
14,653
|
|
|
$
|
34,467
|
|
The severance accrual relates
to accrued severance costs due to the COO, whose employment with the Company was terminated on December 15, 2016 as part of a cost
reduction exercise.
|
i)
|
Series B Convertible Preferred Stock
|
The Company has undeclared dividends
on the Series B Preferred stock amounting to $136,504 as of March 31, 2017. If the dividends are paid in stock, the beneficial
conversion feature of these undeclared dividends will be recorded upon the declaration of these dividends. The computation of
loss per common share for the three months ended March 31, 2017 takes into account these undeclared dividends.
PLEDGE PETROLEUM CORP.
(formerly Propell Technologies Group,
Inc.)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
8
|
STOCKHOLDERS’ EQUITY (continued)
|
|
a)
|
Preferred stock (continued)
|
|
ii)
|
Series C Convertible Preferred Stock
|
The Company has undeclared dividends
on the Series C Preferred stock amounting to $1,106,301 as of March 31, 2017. The computation of loss per common share for the
three months ended March 31, 2017 takes into account these undeclared dividends.
At March 31, 2017 and December
31, 2016 there were 380,950 Plan options issued and outstanding, respectively, under the Stock Option Plan.
No options were issued during the
three months ended March 31, 2017 and the year ended December 31, 2016.
|
ii)
|
Non-Plan Stock Options
|
On January 1, 2016, the Company
granted, to its then Chief Executive Officer, non- options for 3,000,000 shares of common stock (that are not covered by the Company’s
Stock Option Plan), with an exercise price of $0.09 per share. These options vested as to 1,000,000 on January 1, 2017, the first
anniversary of the grant date; 1,000,000 was due to vest on the second anniversary of the grant date and a further 1,000,000 was
due to vest on the third anniversary of the grant date.
On March 31, 2017, the Chief
Executive Officer, Mr. Brian Boutte tendered his resignation and the remaining unvested options for 2,000,000 shares of common
stock were cancelled.
A summary of all of our option
activity during the period January 1, 2016 to March 31, 2017 is as follows:
|
|
No. of shares
|
|
|
Exercise price
per share
|
|
|
Weighted
average exercise
price
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2016
|
|
|
380,950
|
|
|
|
$0.08 to $13.50
|
|
|
$
|
0.18
|
|
Granted
|
|
|
4,000,000
|
|
|
|
$0.08 to $0.09
|
|
|
|
0.09
|
|
Forfeited/cancelled
|
|
|
(1,000,000
|
)
|
|
|
$0.08
|
|
|
|
0.08
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding December 31, 2016
|
|
|
3,380,950
|
|
|
|
$0.09 to $13.50
|
|
|
$
|
0.18
|
|
Granted - non-plan options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/cancelled
|
|
|
(2,000,000
|
)
|
|
|
$0.09
|
|
|
|
0.09
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding March 31, 2017
|
|
|
1,380,950
|
|
|
|
$0.09 to $13.50
|
|
|
$
|
0.31
|
|
Stock options outstanding as of
March 31, 2017 and December 31, 2016 as disclosed in the above table, have an intrinsic value of $0 and $0, respectively.
PLEDGE PETROLEUM CORP.
(formerly Propell Technologies Group,
Inc.)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
8
|
STOCKHOLDERS’ EQUITY (continued)
|
|
b)
|
Stock Options (continued)
|
The options outstanding and exercisable at March
31, 2017 are as follows:
|
|
|
Options outstanding
|
|
|
Options exercisable
|
|
Exercise price
|
|
|
No. of shares
|
|
|
Weighted
average
remaining years
|
|
|
Weighted
average exercise
price
|
|
|
No. of shares
|
|
|
Weighted
average exercise
price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13.50
|
|
|
|
3,480
|
|
|
|
2.21
|
|
|
|
|
|
|
|
3,480
|
|
|
|
|
|
$
|
12.50
|
|
|
|
2,000
|
|
|
|
3.53
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
$
|
8.50
|
|
|
|
500
|
|
|
|
4.25
|
|
|
|
|
|
|
|
500
|
|
|
|
|
|
$
|
5.00
|
|
|
|
14,800
|
|
|
|
4.54
|
|
|
|
|
|
|
|
14,800
|
|
|
|
|
|
$
|
0.65
|
|
|
|
36,924
|
|
|
|
6.00
|
|
|
|
|
|
|
|
36,924
|
|
|
|
|
|
$
|
0.63
|
|
|
|
38,096
|
|
|
|
1.25
|
|
|
|
|
|
|
|
38,096
|
|
|
|
|
|
$
|
0.51
|
|
|
|
285,150
|
|
|
|
3.04
|
|
|
|
|
|
|
|
285,150
|
|
|
|
|
|
$
|
0.09
|
|
|
|
1,000,000
|
|
|
|
3.76
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,380,950
|
|
|
|
3.60
|
|
|
|
0.31
|
|
|
|
1,380,950
|
|
|
|
0.31
|
|
The Company has recorded an
expense of $18,066 and $19,757 for the three months ended March 31, 2017 and 2016, respectively relating to options issued.
The warrants outstanding and exercisable at March
31, 2017 are as follows:
|
|
|
Warrants outstanding
|
|
|
Warrants exercisable
|
|
Exercise price
|
|
|
No. of shares
|
|
|
Weighted
average
remaining years
|
|
|
Weighted
average exercise
price
|
|
|
No. of shares
|
|
|
Weighted
average
exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.30
|
|
|
|
375,000
|
|
|
|
1.58
|
|
|
|
|
|
|
|
375,000
|
|
|
|
|
|
$
|
0.25
|
|
|
|
1,751,667
|
|
|
|
2.24
|
|
|
|
|
|
|
|
1,751,667
|
|
|
|
|
|
$
|
0.15
|
|
|
|
525,500
|
|
|
|
2.24
|
|
|
|
|
|
|
|
525,500
|
|
|
|
|
|
$
|
0.25
|
|
|
|
1,508,333
|
|
|
|
2.35
|
|
|
|
|
|
|
|
1,508,333
|
|
|
|
|
|
$
|
0.15
|
|
|
|
577,499
|
|
|
|
2.35
|
|
|
|
|
|
|
|
577,499
|
|
|
|
|
|
$
|
0.25
|
|
|
|
968,166
|
|
|
|
2.35
|
|
|
|
|
|
|
|
968,166
|
|
|
|
|
|
$
|
0.25
|
|
|
|
633,333
|
|
|
|
2.40
|
|
|
|
|
|
|
|
633,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,339,498
|
|
|
|
2.27
|
|
|
|
0.24
|
|
|
|
6,339,498
|
|
|
|
0.24
|
|
The warrants outstanding have an intrinsic value
of $0 and $0 as of March 31, 2017 and December 31, 2016, respectively.
PLEDGE PETROLEUM CORP.
(formerly Propell Technologies Group,
Inc.)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
|
Three months
ended
March 31,
2017
|
|
|
Three months
ended
March 31,
2016
|
|
|
|
|
|
|
|
|
|
|
License fee forgiven
|
|
$
|
-
|
|
|
$
|
200,000
|
|
Other income includes the forgiveness of the $200,000
license fee due to Novas BVI during the prior period.
Basic loss per share is based
on the weighted-average number of common shares outstanding during each period. Diluted loss per share is based on basic shares
as determined above plus common stock equivalents, including convertible preferred shares and convertible notes as well as the
incremental shares that would be issued upon the assumed exercise of in-the-money stock options using the treasury stock method.
The computation of diluted net loss per share does not assume the issuance of common shares that have an anti-dilutive effect on
net loss per share. For the three months ended March 31, 2017 and 2016, all stock options, unvested restricted stock awards, warrants,
convertible preferred stock and convertible notes were excluded from the computation of diluted net loss per share. Dilutive shares
which could exist pursuant to the exercise of outstanding stock instruments and which were not included in the calculation because
their affect would have been anti-dilutive are as follows:
|
|
Three months
ended
March 31,
2017
|
|
|
Three months
ended
March 31,
2016
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
1,380,950
|
|
|
|
4,380,950
|
|
Warrants to purchase shares of common stock
|
|
|
6,339,498
|
|
|
|
6,339,498
|
|
Series A-1 convertible preferred shares
|
|
|
31,375,000
|
|
|
|
31,375,000
|
|
Series B convertible preferred shares
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
Series C convertible preferred shares
|
|
|
120,000,000
|
|
|
|
120,000,000
|
|
|
|
|
163,095,448
|
|
|
|
166,095,448
|
|
PLEDGE PETROLEUM CORP.
(formerly Propell Technologies Group,
Inc.)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
11
|
RELATED PARTY TRANSACTIONS
|
On January 1, 2016, the “Company
entered into a three-year Employment Agreement with C. Brian Boutte (the “Boutte Employment Agreement”) to serve as
the Company’s Chief Executive Officer. Mr. Boutte was to also serve as the Company’s interim Chief Financial Officer.
Under the Boutte Employment Agreement, for his service as the Chief Executive Officer of the Company, Mr. Boutte was to receive
an annual base salary of $265,000, a sign on bonus of $60,000 and an annual performance bonus of up to 55% of his base salary,
such bonus payable in cash or equity upon attainment of certain performance indicators established by the Company’s Board
of Directors and Mr. Boutte. In connection with the entry into the Boutte Employment Agreement, Mr. Boutte was granted an option
award exercisable for 3,000,000 shares of the Company’s common stock, which will vest as to 1,000,000 shares on each of the
one, two and three-year anniversary of the commencement of his employment with the Company. The Boutte Employment Agreement was
amended on December 31, 2016 to provide for a term of six months ending June 30, 2017, a reduced annual base salary of $165,000
and a provision for immediate vesting of the options upon a Change of Control (as defined in the amendment). In the event that
Mr. Boutte’s employment was terminated Without Cause (as defined in the Boutte Employment Agreement), by Mr. Boutte for Good
Reason (as defined below), Disability (as defined in the Boutte Employment Agreement), upon his death or a change in control, Mr.
Boutte would be entitled to receive a severance payment equal to $65,000. Upon a change in control, Mr. Boutte Mr. Boutte’s
options would immediately vest. The Boutte Employment Agreement also included customary confidentiality obligations and inventions
assignments by Mr. Boutte as well as a non- compete and non-solicitation provision. If his employment was terminated for Cause
(as defined below) or by him Without Good Reason (as defined in the Boutte Employment Agreement), Mr. Boutte was entitled to receive
his annual base salary through the date of termination and any bonus earned but unpaid. For purpose of the Boutte Employment Agreement,
“Good Reason” is defined as (i) any material and substantial breach of the Boutte Employment Agreement by the Company;
(ii) a Change in Control (as defined in the Boutte Employment Agreement) occurs and Mr. Boutte’s employment is terminated;
(iii) a reduction in Mr. Boutte’s Annual Base Salary as in effect at the time in question, or any other failure by the Company
to comply with the compensation terms of the Boutte Employment Agreement; or (iv) the Boutte Employment Agreement is not assumed
by a successor to the Company. For purposes of the Boutte Employment Agreement, “Cause” is defined as (i) acts of embezzlement
or misappropriation of funds or fraud; (ii) conviction of a felony or other crime involving moral turpitude, dishonesty or theft;
(iii) a material violation by Mr. Boutte of any provision of the Boutte Employment Agreement, including willful failure to perform
assigned tasks, willful and unauthorized disclosure of Company material confidential information; (iv) being under the influence
of drugs (other than prescription medicine or other medically related drugs to the extent that they are taken in accordance with
their directions) during the performance of Mr. Boutte’s duties and that performance of his duties is affected; (v) engaging
in behavior that would constitute grounds for liability for harassment (as proscribed by the U.S. Equal Employment Opportunity
Commission Guidelines or any other applicable state or local regulatory body) or other egregious conduct that violates laws governing
the workplace; or (vi) willful failure to perform his assigned tasks, where such failure is attributable to the fault of Mr. Boutte,
gross insubordination or dereliction of fiduciary obligations which, to the extent it is curable by Mr. Boutte, is not cured by
Mr. Boutte within thirty (30) days of receiving written notice of such violation by the Company.
Mr. Boutte tendered his resignation
to the Board of directors on March 31, 2017.
12
|
COMMITMENTS AND CONTINGENCIES
|
The Company disposed of its Crystal
Magic, Inc. subsidiary effective December 31, 2013. In terms of the sale agreement entered into by the Company, the purchaser has
been indemnified against all liabilities whether contingent or otherwise, claimed by third parties, this includes claims by creditors
of the Company amounting to $372,090 and claims against long-term liabilities of $848,916. Management does not consider it likely
that these claims will materialize and accordingly no provision has been made for these contingent liabilities.
PLEDGE PETROLEUM CORP.
(formerly Propell Technologies Group,
Inc.)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
12
|
COMMITMENTS AND CONTINGENCIES (continued)
|
The Company entered into lease
agreement for approximately 3,733 square feet of office and warehouse space in Houston, the term of the lease was for 39 months
commencing on March 1, 2016 and terminating on May 31, 2019. The lease provided for the first month to be rent free, the fourteenth
month to be rent free and the twenty-seventh month to be rent free. Monthly rentals, including estimated operating costs, for
the first 12 months, excluding the free rental month amounted to approximately $3,410 per month, escalating at a rate of 1.7%
per annum, after excluding the free rental months. This lease agreement was amended and the lease terminated with effect from
May 31, 2017 with a final payment of $2,000 and the forfeiture of the security deposit of $6,968.
The Company entered into an Office
Service Agreement on May 16, 2017 whereby it has the license to use an office in a business center, together with all telecommunication
services and access to conference rooms, kitchens and all utilities, the agreement is for a period of six months commencing on
June 1, 2017 and terminating on November 30, 2017. The Company pays a monthly amount of $530 in terms of the Office Service Agreement.
In terms of the license agreement
commitments disclosed in note 6 above, the minimum commitments due under the amended license agreement entered into on January
30, 2013, for the next five years, are summarized as follows:
|
|
Amount
|
|
|
|
|
|
2017
|
|
$
|
500,000
|
|
2018
|
|
|
500,000
|
|
2019
|
|
|
500,000
|
|
2020
|
|
|
500,000
|
|
2021
|
|
|
500,000
|
|
Total
|
|
$
|
2,500,000
|
|
In accordance with ASC 855-10,
the Company has analyzed its operations subsequent to March 31, 2017 to the date these financial statements were issued, and has
determined that it does not have any material subsequent events to disclose in these financial statements.