Petrolia Energy Corporation 8-K/A
Exhibit 99.2
Bow Energy Ltd.
Condensed Interim Consolidated Financial Statements (unaudited)
For the nine months ended December 31, 2017 and 2016
THE ACCOMPANYING CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2017 AND 2016 HAVE NOT BEEN REVIEWED OR AUDITED BY THE CORPORATION’S AUDITORS
Bow Energy Ltd.
Condensed Interim Consolidated Statements of Financial Position
Unaudited (Expressed in Canadian dollars)
As at December 31, | As at March 31, | |||||||||||
Notes | 2017 | 2017 | ||||||||||
Assets | ||||||||||||
Current assets | ||||||||||||
Cash | $ | 5,415 | $ | 43,623 | ||||||||
Trade and other receivables | 515,531 | 2,607,047 | ||||||||||
Prepaid expenses and deposits | 5,975 | 6,339 | ||||||||||
Total current assets | 526,921 | 2,657,009 | ||||||||||
Non-current assets | ||||||||||||
Prepaid expenses and deposits | 424,018 | — | ||||||||||
Oil and gas property and equipment | 6 | 15,446 | 324,326 | |||||||||
Advances to joint venture | 7 | 2,049,605 | 2,007,666 | |||||||||
Investment in joint venture | 158,901 | 168,591 | ||||||||||
Exploration and evaluation assets | 8 | 2,051,651 | — | |||||||||
Total non-current assets | 4,699,621 | 2,500,583 | ||||||||||
Total assets | $ | 5,226,542 | $ | 5,157,592 | ||||||||
Liabilities | ||||||||||||
Current liabilities | ||||||||||||
Trade and other payables | $ | 1,224,411 | $ | 208,101 | ||||||||
Notes payable | 9 | 1,642,601 | 1,241,295 | |||||||||
Total liabilities | 2,867,012 | 1,449,396 | ||||||||||
Equity | ||||||||||||
Share capital | 17,649,200 | 17,649,200 | ||||||||||
Contributed surplus | 3,197,509 | 3,025,869 | ||||||||||
Accumulated other comprehensive income | 248,721 | 901,920 | ||||||||||
Deficit | (18,735,900 | ) | (17,868,793 | ) | ||||||||
Total equity | 2,359,530 | 3,708,196 | ||||||||||
Total liabilities and equity | $ | 5,226,542 | $ | 5,157,592 | ||||||||
Going concern (Note 2)
The following notes are an integral part of these condensed interim consolidated financial statements
1 |
Bow Energy Ltd.
Condensed Interim Consolidated Statement of Loss and Other Comprehensive Loss
For the three and nine months ended December 31,
Unaudited (Expressed in Canadian dollars)
For the three months ended December 31, | For the nine months ended December 31, | |||||||||||||||||||
Notes | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||
Expenses | ||||||||||||||||||||
General and administrative | $ | 133,619 | $ | 88,226 | $ | 666,241 | $ | 284,162 | ||||||||||||
Exchange (gain) loss | 13,639 | 5,280 | (30,406 | ) | 5,280 | |||||||||||||||
147,258 | 93,506 | 635,835 | 289,442 | |||||||||||||||||
Income (loss) before interest, income taxes, and depreciation | (147,258 | ) | (93,506 | ) | (635,835 | ) | (289,442 | ) | ||||||||||||
Interest and financing costs | (67,862 | ) | (26,792 | ) | (142,282 | ) | (76,103 | ) | ||||||||||||
Depreciation | 6 | (1,589 | ) | (172 | ) | (5,747 | ) | (516 | ) | |||||||||||
Net loss from continuing operations | (216,709 | ) | (120,472 | ) | (783,864 | ) | (366,061 | ) | ||||||||||||
Income (loss) from discontinued operations | 13 | — | 498,756 | (83,243 | ) | (1,240,419 | ) | |||||||||||||
Net loss for the period | (216,709 | ) | 378,286 | (867,107 | ) | (1,606,480 | ) | |||||||||||||
Other comprehensive income (loss) | ||||||||||||||||||||
Exchange differences on translating foreign operations | (486,675 | ) | 142,983 | (653,199 | ) | 194,166 | ||||||||||||||
Other comprehensive loss for the period | $ | (703,384 | ) | $ | 521,269 | $ | (1,520,306 | ) | $ | (1,412,314 | ) | |||||||||
Loss per share from continuing operations | 10 | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.00 | ) | |||||||
Income (loss) per share from discontinued operations | 10 | $ | (0.00 | ) | $ | 0.01 | $ | (0.00 | ) | $ | (0.01 | ) | ||||||||
The following notes are an integral part of these condensed interim consolidated financial statements
2 |
Bow Energy Ltd.
Condensed Interim Consolidated Statement of Changes in Equity
For the nine months ended December 31,
Unaudited (Expressed in Canadian dollars)
Share Capital | Contributed surplus | Accumulated other comprehensive income (loss) | Deficit | Total Equity | ||||||||||||||||
Balance, April 1, 2016 | $ | 17,649,200 | $ | 2,906,663 | $ | 571,714 | $ | (16,590,364 | ) | $ | 4,537,214 | |||||||||
Share based payments(Note 10) | — | 62,012 | — | — | 62,012 | |||||||||||||||
Debt issuance costs | — | — | — | — | 14,505 | |||||||||||||||
Exchange difference on translating foreign operations | — | 14,505 | 194,166 | — | 194,166 | |||||||||||||||
Net loss for period | — | — | — | (1,606,480 | ) | (1,606,480 | ) | |||||||||||||
Balance, December 31, 2016 | $ | 17,649,200 | $ | 2,983,180 | $ | 765,880 | $ | (18,196,844 | ) | $ | 3,201,417 | |||||||||
Balance, April 1, 2017 | $ | 17,649,200 | $ | 3,025,869 | $ | 901,920 | $ | (17,868,793 | ) | $ | 3,708,196 | |||||||||
Share based payments(Note 10) | — | 171,640 | — | — | 171,640 | |||||||||||||||
Exchange difference on translating foreign operations | — | — | (653,199 | ) | — | (653,199 | ) | |||||||||||||
Net loss for period | — | — | — | (867,107 | ) | (867,107 | ) | |||||||||||||
Balance, December 31, 2017 | $ | 17,649,200 | $ | 3,197,509 | $ | 248,721 | $ | (18,735,900 | ) | $ | 2,359,530 |
The following notes are an integral part of these condensed interim consolidated financial statements
3 |
Bow Energy Ltd.
Condensed Interim Consolidated Statements of Cash Flows
For the nine months ended December 31,
Unaudited (Expressed in Canadian dollars)
Notes | 2017 | 2016 | ||||||||||
Operating | ||||||||||||
Loss for the period | $ | (867,017 | ) | $ | (1,606,479 | ) | ||||||
Adjustments for: | ||||||||||||
Loss from discontinued operations | 13 | 83,241 | 1,240,419 | |||||||||
Accretion | 9 | 5,835 | 3,668 | |||||||||
Depreciation | 6 | 5,747 | 516 | |||||||||
Unrealized exchange gain | (30,406 | ) | — | |||||||||
Share-based payments | 10 | 171,640 | 62,012 | |||||||||
Changes in | ||||||||||||
Trade and other receivables | 8,920 | (3,298 | ) | |||||||||
Prepaid expenses | (31,212 | ) | — | |||||||||
Trade and other payables | 176,524 | (268,620 | ) | |||||||||
Operating cash flows used for continuing operations | (476,728 | ) | (571,782 | ) | ||||||||
Operating cash flows from discontinued operations | 2,184,674 | 1,409,940 | ||||||||||
Cash flows from operating activities | 1,707,946 | 838,158 | ||||||||||
Financing | ||||||||||||
Proceeds from related party note payable | 11 | 47,000 | — | |||||||||
Repayment of notes payable | 9 | (362,010 | ) | — | ||||||||
Interest on notes payable | 5,779 | 17,860 | ||||||||||
Proceeds from notes payable | 9 | 100,000 | 475,700 | |||||||||
Cash flows from (used for) financing activities | (209,231 | ) | 493,560 | |||||||||
Investing | ||||||||||||
Additions to oil and gas property and equipment | 6 | (18,552 | ) | — | ||||||||
Advances to joint venture | (157,330 | ) | (820,750 | ) | ||||||||
Acquisition of exploration and evaluation assets | 5 | (1,072,049 | ) | — | ||||||||
Cash flows used for investing activities | (1,247,932 | ) | (820,750 | ) | ||||||||
Net increase in cash | 250,783 | 510,968 | ||||||||||
Foreign exchange effect on cash held in foreign currencies | (288,991 | ) | 20,907 | |||||||||
Cash, beginning of the period | 43,623 | 55,538 | ||||||||||
Cash, end of the period | $ | 5,415 | $ | 587,412 |
Supplemental cash flow (Note 12)
The following notes are an integral part of these condensed interim consolidated financial statements
4 |
BOW ENERGY LTD.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended December 31, 2017 and 2016
Unaudited (Expressed in Canadian dollars)
1. | NATURE OF OPERATIONS |
On January 24, 2017 ACL International Ltd. amended its name to Bow Energy Ltd. (the “Company” or “Bow”). The Company is an Alberta, Canada corporation with common shares listed on the TSX Venture Exchange under the trading symbol “ONG”. The Company’s principal office is located at 16th Floor, 205 – 5 Avenue SW, Calgary, Alberta T2P 2V7.
On June 30, 2015 TSX Venture Exchange accepted the Company’s application for a change of business from a general insurance brokerage issuer to an oil and gas issuer. In addition, the Company met the requirements to be listed as a TSX Venture Tier 1 issuer. Effective July 2, 2015, the listing of the Company's shares was transferred from the NEX to the TSX Venture exchange. The Company is now engaged in the exploration and development of and production of oil and natural gas in Indonesia.
2. | BASIS OF PRESENTATION AND GOING CONCERN |
These interim consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 2017 annual report.
These consolidated financial statements have been prepared on a going concern basis in accordance with IFRS which contemplates the Company will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business.
Going Concern
The Company incurred a net loss of $867,107 from continuing operations for the nine months ended December 31, 2017 and as of that date the Company’s accumulated deficit was $18,735,900. The Company’s Langsa TAC asset expired in May 2017, which has been the Company’s primary source of cash and only source of revenue. The Company no longer has any oil and gas assets in production. During the exploration stage, the recoverability of the costs incurred to date on exploration properties is dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain the necessary financial resources to complete the exploration and development of its properties and upon future profitable production or proceeds from the disposition of the properties and deferred exploration expenditures. The Company will periodically have to raise funds to continue operations and, although it has been successful in doing so in the past, there is no assurance it will be able to do so in the future. These factors give rise to a material uncertainty which may cast significant doubt about the Company’s ability to continue as a going concern.
3. | SIGNIFICANT ACCOUNTING POLICIES |
Bow Energy Ltd. applies the same accounting policies and methods of computation in its interim consolidated financial statements as in its 2017 annual financial statements, unless otherwise stated below. None of the new standards, interpretations, and amendments, effective for the first time from 1 January 2017, have had a material effect on the financial statements.
The preparation of the consolidated financial statements in compliance with IFRS requires management to make certain critical accounting estimates. It also requires management to exercise judgment in applying the Company’s accounting policies. The areas involving a higher degree of judgment of complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4.
5 |
BOW ENERGY LTD.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended December 31, 2017 and 2016
Unaudited (Expressed in Canadian dollars)
3. | SIGNIFICANT ACCOUNTING POLICIES (continued) |
Oil and natural gas exploration, evaluation, and development expenditure
Oil and natural gas exploration, evaluation and development expenditure is accounted for using the successful efforts method of accounting.
(i) Pre-licence costs
Pre-licence costs are expensed in the period in which they are incurred.
(ii) Licence and property acquisition costs
Exploration licence and leasehold property acquisition costs are capitalised in intangible assets.
Licence and property acquisition costs are reviewed at each reporting date to confirm that there is no indication that the carrying amount exceeds the recoverable amount. This review includes confirming that exploration drilling is still under way or firmly planned, or that it has been determined, or work is under way to determine that the discovery is economically viable based on a range of technical and commercial considerations and that sufficient progress is being made on establishing development plans and timing.
If no future activity is planned or the licence has been relinquished or has expired, the carrying value of the licence and property acquisition costs are written off through the statement of income (loss) and other comprehensive income (loss). Upon recognition of proved reserves and internal approval for development, the relevant expenditure is transferred to oil and gas properties.
(iii) Exploration and evaluation costs
Exploration and evaluation activity involves the search for hydrocarbon resources, the determination of technical feasibility and the assessment of commercial viability of an identified resource.
Once the legal right to explore has been acquired, costs directly associated with an exploration well are capitalised as exploration and evaluation intangible assets until the drilling of the well is complete and the results have been evaluated. These costs include directly attributable employee remuneration, materials and fuel used, rig costs and payments made to contractors.
Geological and geophysical costs are recognised in the statement of income (loss) and other comprehensive income (loss), as incurred.
If no potentially commercial hydrocarbons are discovered, the exploration asset is written off through the statement of income (loss) and other comprehensive income (loss) as a dry hole. If extractable hydrocarbons are found and, subject to further appraisal activity (e.g., the drilling of additional wells), it is probable that they can be commercially developed, the costs continue to be carried as an intangible asset while sufficient/continued progress is made in assessing the commerciality of the hydrocarbons. Costs directly associated with appraisal activity undertaken to determine the size, characteristics and commercial potential of a reservoir following the initial discovery of hydrocarbons, including the costs of appraisal wells where hydrocarbons were not found, are initially capitalised as an intangible asset.
All such capitalised costs are subject to technical, commercial and management review, as well as review for indicators of impairment at least once a year. This is to confirm the continued intent to develop or otherwise extract value from the discovery. When this is no longer the case, the costs are written off through the statement of income (loss) and other comprehensive income (loss).
6 |
BOW ENERGY LTD.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended December 31, 2017 and 2016
Unaudited (Expressed in Canadian dollars)
3. | SIGNIFICANT ACCOUNTING POLICIES (continued) |
When proved reserves of oil and natural gas are identified and development is sanctioned by management, the relevant capitalised expenditure is first assessed for impairment and (if required) any impairment loss is recognised, then the remaining balance is transferred to oil and gas properties. Other than licence costs, no amortisation is charged during the exploration and evaluation phase.
For exchanges/swaps or parts of exchanges/swaps that involve only exploration and evaluation assets, the exchange is accounted for at the carrying value of the asset given up and no gain or loss is recognised.
(iv) Development costs
Expenditure on the construction, installation, or completion of infrastructure facilities such as platforms, pipelines and the drilling of development wells, including unsuccessful development or delineation wells, is capitalized within oil and gas properties.
(iv) Farm-outs — in the exploration and evaluation phase
The Company does not record any expenditure made by the farmee on its account. It also does not recognise any gain or loss on its exploration and evaluation farm-out arrangements, but redesignates any costs previously capitalised in relation to the whole interest as relating to the partial interest retained. Any cash consideration received directly from the farmee is credited against costs previously capitalised in relation to the whole interest with any excess accounted for by the farmor as a gain on disposal.
4. | USE OF ESTIMATES AND JUDGMENTS |
There have been no material revisions to the nature and amount of changes in estimates or judgements of amounts reported in the annual financial statements 2017.
Business combinations
Business combinations are accounted for using the acquisition method of accounting. The determination of fair value often requires management to make assumptions and estimates about future events. The assumptions and estimates with respect to determining the fair value of property, plant, and equipment, and exploration and evaluation assets acquired generally require the most judgment and include estimates of reserves acquired, forecast benchmark commodity prices, and discount rates. Changes in any of the assumptions or estimates used in determining the fair value of acquired assets and liabilities could impact the amounts assigned to assets, liabilities in the purchase price allocation, and any resulting gain or goodwill. Future net earnings can be affected as a result of changes in future depletion, depreciation and accretion, and asset impairments.
The Company applied judgement in accounting for the acquisition of the five entities discussed in detail in note 5. The production sharing contracts owned by the subsidiaries are all at a similar stage of development. The joint study agreement is at an even earlier stage. The Company has made the judgement that although these entities are operational, there are no inputs as the entity is in the exploration stage and many of the employees were terminated as part of the asset acquisition. At the time of the acquisition, there was an exploration program in place, but no processes in place to convert the inputs and no production plans. Given all of these factors, the Company has made the judgement that the purchase of these entities lacked the business elements required to be considered as a business combination and the asset acquisition method has been applied.
7 |
BOW ENERGY LTD.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended December 31, 2017 and 2016
Unaudited (Expressed in Canadian dollars)
5. | ACQUISITION OF EXPLORATION AND EVALUATION ASSETS |
On May 24, 2017, the Company’s wholly owned subsidiary, Bow Energy International Holdings Inc. (“BEIH”), acquired all of Bukit Energy Inc.’s shareholding interests (the “Subsidiary Shares”) in five Singapore holding companies (the “Holding Companies”) that own the interests in four Production Sharing Contracts (“PSCs”) and one non-conventional joint study agreement (“JSA”), all interests are located onshore in Sumatra, Indonesia. The Holding Companies being acquired were Bukit Energy Central Sumatra (Mahato) Pte. Ltd. (“Mahato”), Bukit Energy Palmerah Baru Pte. Ltd. (“Palmerah Baru”), Bukit Energy Resources Palmerah Deep Pte. Ltd. (“Palmerah Deep”), Bukit Energy Bohorok Pte. Ltd. (“Bohorok”), and Bukit Energy Resources North Sumatra Pte. Ltd. (“Bohorok Deep”), collectively referred to as the “Bukit assets”.
The Holding Companies being acquired by BEIH own the following interests in the conventional and non-conventional PSCs and non-conventional JSA:
● | Bohorok PSC (conventional) – operated 50% participating interest, 465,266 net acres |
● | Palmerah Baru PSC (conventional) – operated 54% participating interest, 98,977 net acres |
● | Palmerah Deep PSC (non-conventional)- operated 69.36% participating interest, 170,398 net acres |
● | Mahato PSC (conventional)- 20% participating interest, 167,115 net acres, non-operated |
● | Bohorok Deep (non-conventional)- 20.25% participating interest in a JSA, non-operated with option to become operator |
Assets were purchased for a total of USD $1,967,494 for a total CDN purchase price of $2,648,247. The Company paid an initial amount of $1,072,049 (USD $796,470), assumed liabilities of $819,945 (USD $609,172), issued a note payable of $673,000 (USD $500,000) which is due and payable on December 31, 2017 and had closing costs of $83,253.
The purchase price allocation can be summarized as follows:
Cash | $ | 724 | ||
Trade and other receivables | 24,775 | |||
Prepaid expenses and deposits | 421,455 | |||
Exploration and evaluation assets | 2,201,293 | |||
$ | 2,648,247 |
The fair values of identifiable assets acquired as reported in the table above were estimated based on information available at the time of preparation of these interim condensed consolidated financial statements. Actual amounts recognized by the Company once the acquisition accounting is finalized may differ materially from these estimates.
8 |
BOW ENERGY LTD.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended December 31, 2017 and 2016
Unaudited (Expressed in Canadian dollars)
6. | OIL AND GAS PROPERTY AND EQUIPMENT |
Cost | Development and production assets | Other Assets | Total | |||||||||
As at April 1, 2016 | $ | 11,508,629 | $ | 4,591 | $ | 11,513,220 | ||||||
Foreign currency translation change | 300,780 | — | 300,780 | |||||||||
Cost as at March 31, 2017 | $ | 11,809,409 | $ | 4,591 | $ | 11,814,000 | ||||||
Additions | — | 18,553 | 18,553 | |||||||||
Abandonment | (10,925,700 | ) | — | (10,925,700 | ) | |||||||
Foreign currency translation change | (883,709 | ) | — | (883,709 | ) | |||||||
Cost as at December 31, 2017 | $ | — | $ | 23,144 | $ | 23,144 | ||||||
Accumulated depletion and depreciation | ||||||||||||
As at April 1, 2016 | $ | 8,628,185 | $ | 1,263 | $ | 8,629,448 | ||||||
Charge for the period | 2,581,201 | 688 | 2,581,889 | |||||||||
Impairment | 16,425 | — | 16,425 | |||||||||
Foreign currency translation change | 261,912 | — | 261,912 | |||||||||
Accumulated depletion and depreciation as at March 31, 2017 | $ | 11,487,723 | $ | 1,951 | $ | 11,489,674 | ||||||
Charge for the period | 325,046 | 5,747 | 330,793 | |||||||||
Abandonment | (11,809,409 | ) | — | (11,809,409 | ) | |||||||
Foreign currency translation change | (3,360 | ) | — | (3,360 | ) | |||||||
Accumulated depletion and depreciation as at December 31, 2017 | $ | — | $ | 7,698 | $ | 7,698 | ||||||
Net book value as at March 31, 2017 | $ | 321,686 | $ | 2,640 | $ | 324,326 | ||||||
Net book value as at December 31, 2017 | $ | — | $ | 15,446 | $ | 15,446 |
The depletion calculation for the period ended December 31, 2017 included estimated future development costs of $nil (2016: nil) for proved and probable reserves.
Langsa TAC
In May of 2017, the Company’s licence for the Langsa TAC block expired and was not renewed by the government, consequently, the asset reverted back to the government and for accounting purposes is considered abandoned.
9 |
BOW ENERGY LTD.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended December 31, 2017 and 2016
Unaudited (Expressed in Canadian dollars)
7. | INVESTMENT IN JOINT VENTURE |
The Company’s investment in REE has been accounted for as a joint venture. The Company has joint control over the strategic financial and operating decisions of REE, but no single venturer has the ability to control the relevant activities of REE unilaterally and the parties have rights to the net assets of the arrangement.
The following is summarized financial information for REE as at December 31, 2017, based on its financial statements prepared in accordance with IFRS.
Revenue | $ | — | ||
Profit from continuing operations | — | |||
Other comprehensive income | — | |||
Total comprehensive income | — | |||
Current assets(i) | $ | 5,651 | ||
Non-current assets | 9,484,856 | |||
Current liabilities | (304,039 | ) | ||
Non-current liabilities | — | |||
Net assets | $ | 9,186,468 |
(i) Includes cash of $686 |
As part of the acquisition of REE, the Company acquired loans receivable of $690,862 and subsequently advanced additional funds bringing total advances to $2,049,605. These advances are non-interest bearing. As part of the REE shareholder’s agreement, all after-tax proceeds from the operations of SBA are first used to repay the shareholder’s loans, prior to any distributions relative to each party’s share interests. As at December 31, 2017, SBA had not reached technical feasibility or commercial viability and as such the amounts remain outstanding.
On September 23, 2016, PT. Prosys Oil and Gas International (“POGI”) defaulted on a cash call requirement to fund SBA as part of its 14% working interest. The deadline to remedy the default was on October 23, 2016. As of March 31, 2017, the default has not been remedied and REE and KRX Energy (SBA) Pte Ltd. are taking steps to transfer POGI’s interest in SBA in the following proportions: REE: 8.3% and KRX Energy (SBA) Pte Ltd. 5.7%. The proportionate interests in SBA are now: 59.3% for REE and 40.7% for Lion.
8. | EXPLORATION AND EVALUATION ASSETS |
Bohorok | Palmerah Baru | Palmerah Deep | Mahato | Total | ||||||||||||||||
Cost as at April 1, 2017 | — | — | — | — | — | |||||||||||||||
Acquisition of Bukit assets (Note 5) | 1,181,551 | 477,049 | 235,712 | 306,981 | 2,201,293 | |||||||||||||||
Additions | — | — | — | — | — | |||||||||||||||
Foreign currency translation change | (80,321 | ) | (32,429 | ) | (16,024 | ) | (20,868 | ) | (149,642 | ) | ||||||||||
Cost as at December 31, 2017 | 1,101,230 | 444,620 | 219,688 | 286,113 | 2,051,651 |
10 |
BOW ENERGY LTD.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended December 31, 2017 and 2016
Unaudited (Expressed in Canadian dollars)
9. | NOTES PAYABLE |
December 31, 2017 | March 31, 2017 | |||||||||||||||||||||||
Nominal interest rate | Date of maturity | Face value | Carrying amount | Face value | Carrying amount | |||||||||||||||||||
Promissory note (i) | 12 | % | 31/3/2018 | $ | 48,498 | $ | 51,416 | $ | 48,498 | $ | 49,230 | |||||||||||||
Promissory note (ii) | 12 | % | 31/3/2018 | 47,000 | 48,437 | — | — | |||||||||||||||||
Bukit Energy Inc.(iii) | 8.5 | % | 31/3/2018 | 633,738 | 662,441 | |||||||||||||||||||
Credit note (iv) | 9 | % | Note 9(v) | 880,307 | 880,307 | 1,197,900 | 1,192,065 | |||||||||||||||||
$ | 1,609,543 | $ | 1,642,601 | $ | 1,246,398 | $ | 1,241,295 |
The promissory notes are repayable in full on maturity. The difference between the face value and carrying amount is attributed to accrued interest.
(i) | The note matured on December 31, 2017 and was subsequently extended until September 30, 2018. The note is currently in default and carries interest at 12% per annum. |
(ii) | On June 29, 2017, the Company issued a note payable to a related party in receipt for $47,000. The note matured on December 31, 2017 and was subsequently extended until September 30, 2018. The note is currently in default and carries interest at 12% per annum. |
(iii) | In conjunction with the close of the purchase of the Bukit assets, the Company issued a note payable to Bukit Energy Inc. of USD $500,000 with interest at the rate of 8.5% per annum, calculated monthly, not in advance, on the principal amount. The note matured on August 31, 2017. The note was extended to December 15, 2017 and is currently in default. |
(iv) | On October 26, 2016, the Company entered into Amended and Restated Loan Agreement (“the Agreement”) with the lender. Under the amendment, the interest rate increased from 6.75% to 9% per annum and extended the maturity date to July 14, 2017. The lender advanced a further USD $355,000 with a maturity date of January 7, 2017. The face value of the note in USD as at December 31, 2017 was USD $700,000 (March 31, 2017: USD $900,000). The credit note is secured by a general security agreement over the assets of the Company. Interest is paid monthly. In addition, the Company granted 320,000 warrants to the lender for the right to purchase common shares, of the Company at $0.10 per share. Interest is paid monthly and is recorded at 9% on the full amount of the original issued notes of USD $1,100,000. |
The warrants expire on the date of repayment of the loan. The Company has fair valued the cost of the warrants using a Black Scholes model and recorded a discount on the debt of $14,505 with an offset to contributed surplus. The following assumptions were used in calculating the warrant value under the Black Scholes model: 0% forfeiture rate, measurement price of $0.08, which was the closing price of BOW stock at the date of the grant, risk free rate of 0.56%, an expected term of 0.72 years, dividend yield equal to 0% and volatility of 203% based on the Company’s stock history. The discount is being amortized over the term of the debt. During the nine months ended December 31, 2017, the Company recorded an accretion expense of $5,835 (2016: $nil) related to this debt.
The Agreement date of maturity was extended. USD $200,000 is due and payable on September 15, 2017 and USD $600,000 is due and payable on December 31, 2017. The Company repaid $262,010 (USD $200,000) during the period. The note was subsequently transferred to Petrolia Energy Corporation as part of the merger as described in the subsequent event note 12.
(v) | On June 13, 2017, the Company issued a note payable in receipt for $100,000. The note was repaid in full during the period. | |
11 |
BOW ENERGY LTD.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended December 31, 2017 and 2016
Unaudited (Expressed in Canadian dollars)
10. | SHARE CAPITAL |
Per share amounts
Nine months ended | December 31, 2017 | December 31, 2016 | ||||||
Weighted average number of shares – basic: | ||||||||
Issued common shares as at April 1 | 92,310,184 | 92,310,184 | ||||||
Effect of common shares issued during the period | — | — | ||||||
92,310,184 | 92,310,184 | |||||||
Loss per share from continuing operations | (0.00 | ) | (0.00 | ) | ||||
Income (loss) per share from discontinued operations | $ | (0.00 | ) | $ | (0.01 | ) |
Share-based payments
The Company has adopted an incentive stock option plan whereby the maximum number of shares reserved for issue under the plan shall not exceed 10% of the total number of issued and outstanding common shares of the Company from time to time on a non-diluted basis. The Company received share exchange approval for the issuance of options greater than 10% of the plan.
Changes in share options during the periods ended December 31, 2017 and March 31, 2017 are as follows:
December 31, 2017 | March 31, 2017 | |||||||||||||||
Number of options | Weighted average exercise price | Number of options | Weighted average exercise price | |||||||||||||
Outstanding, beginning of year | 8,517,658 | $ | 0.12 | 6,117,658 | $ | 0.12 | ||||||||||
Granted | 2,200,000 | $ | 0.12 | 3,100,000 | $ | 0.12 | ||||||||||
Forfeited | (1,917,658 | ) | — | (700,000 | ) | — | ||||||||||
Outstanding, end of the year | 8,800,000 | $ | 0.12 | 8,517,658 | $ | 0.12 |
The weighted average remaining life of the options is 3.62 years. As at December 31, 2017, 4,090,000 of options were exercisable.
The Company recorded a share-based payment of $171,640 for the period ended December 31, 2017 (nine months ended December 31, 2016: $62,012).
12 |
BOW ENERGY LTD.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended December 31, 2017 and 2016
Unaudited (Expressed in Canadian dollars)
11. | RELATED PARTY TRANSACTIONS |
The Company enters into transactions with related parties from time to time in the normal course of business, as well as key management personnel.
On May 30, 2016 an Officer of the Corporation granted an unsecured loan, which carries interest at 12% per annum in the amount of $58,000 for general working capital. The note matures on July 29, 2016. The above transaction was in the normal course of business and was at terms agreed to by the related parties. The carrying value of the note as at September 30, 2016 is $58,572;The amount was repaid on September 3, 2016. The difference between the face value and carrying amount is attributed to accrued interest. The officer extended the maturity date to September 15th, subsequent to the period end.
On June 29, 2017, the Company issued a note payable to an Officer in receipt for $47,000. The note matured on December 31, 2017, was extended to March 31, 2018 and carries interest at 12% per annum.
Compensation of key management personnel
Key management personnel are comprised of all members of the Board of Directorsand the Named Officers (as defined in Form 51-102F6 Statement of Executive compensation and disclosed in the Company’s Management Proxy Circular in connection with its annual meeting of shareholders). The summary of the compensation of key management personnel is as follows:
Nine months ended | December 31, 2017 | December 31, 2016 | ||||||
Salary and bonuses | $ | 315,000 | $ | 85,428 | ||||
Share based payments | 171,640 | 62,012 | ||||||
Total compensation of key management personnel | $ | 486,640 | $ | 147,440 |
Share based payments were composed of expenses related to stock options. 2,200,000 shares were issued to officers of the Company on a 5 year term at an option price of $0.12 on September 1, 2017; 50% vested immediately and the remaining 50% vest on the anniversary of the grant.
13 |
BOW ENERGY LTD.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended December 31, 2017 and 2016
Unaudited (Expressed in Canadian dollars)
12. | SUPPLEMENTAL CASH FLOW INFORMATION |
During the nine months ended December 31, 2017 and 2016, the Company had non-cash transactions as follows:
2017 | 2016 | |||||||
Operating activities | ||||||||
Trade and other receivables acquired | $ | (24,748 | ) | $ | — | |||
Prepaid expenses acquired | (421,455 | ) | — | |||||
Trade and other payables acquired | 897,340 | — | ||||||
$ | 451,137 | — | ||||||
Financing activities | ||||||||
Promissory note issued for asset acquisition | $ | 673,000 | $ | — | ||||
$ | 673,000 | $ | — | |||||
Investing activities | ||||||||
Intangible assets acquired | $ | (1,124,137 | ) | $ | — | |||
$ | (1,124,137 | ) | $ | — | ||||
Additional information | ||||||||
Interest paid | $ | 62,109 | $ | 64,265 | ||||
Income taxes paid | $ | — | $ | — |
13. | DISCONTINUED OPERATIONS |
On May of 2017, the Company’s licence for the Langsa TAC block expired and was not renewed by the government, consequently, the Company has ceased production of oil and the asset was abandoned.
To conform with current period classification of the discontinued operations, prior year results have been reclassified to discontinued operations.
Results of discontinued operations are as follows:
Nine months ended | 2017 | 2016 | ||||||
Revenue | $ | 866,686 | $ | 4,082,849 | ||||
Oil and gas expenditures | (638,438 | ) | (3,590,247 | ) | ||||
Exchange gain | 311 | 133,984 | ||||||
Depletion | (311,802 | ) | (1,844,358 | ) | ||||
Loss from discontinued operations | $ | (83,243 | ) | $ | (1,217,772 | ) |
14 |
BOW ENERGY LTD.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended December 31, 2017 and 2016
Unaudited (Expressed in Canadian dollars)
14. | SUBSEQUENT EVENTS |
On December 8, 2017, the Company announced that it has signed a definitive agreement for Petrolia Energy Corporation(“Petrolia”) (BBLS:OTCBB), to acquire Bow (the “Acquisition”). The Agreement sets out the terms and conditions pursuant to which Petrolia will acquire through an all-stock transaction the entire issued and outstanding common shares of Bow. Bow will distribute the common shares of Petrolia it receives to Bow shareholders who will receive shares of Petrolia on the basis of 1.15 Petrolia shares for each common share held in Bow. Bow warrant holders will be entitled to receive, upon exchange of their securities, the equivalent number of Petrolia warrants. Following the completion of the Arrangement, Bow will be a wholly owned subsidiary of Petrolia.
On February 27, 2018, the Acquisition closed and Petrolia acquired all of the issued and outstanding shares of capital stock of Bow (each a “Bow Share”). The Arrangement was approved at a special meeting of shareholders of Bow held on February 21, 2018. Final approval of the Arrangement was granted by the Court of Queen’s Bench of Alberta (the “Court”) on February 23, 2018.
Under the terms of the Arrangement, Bow shareholders are deemed to have received 1.15 Petrolia common stock shares for each Bow Share. A total of 106,156,712 shares of the Company’s common stock were issued to the Bow shareholders as a result of the Arrangement, plus additional shares in connection with the rounding described below. The Arrangement provided that no fractional shares would be issued in connection with the Arrangement, and instead, each Bow shareholder otherwise entitled to a fractional interest would receive the nearest whole number of Company shares. For example, where such fractional interest is greater than or equal to 0.5, the number of shares to be issued would be rounded up to the nearest whole number and where such fractional interest is less than 0.5, the number of shares to be issued would be rounded down to the nearest whole number. In calculating such fractional interests, all shares issuable in the name of or beneficially held by each Bow shareholder or their nominee as a result of the Arrangement shall be aggregated.
15 |