|Closing Price ($)||Shares Out (MM)||Market Cap ($MM)|
|8-K||2019-06-14||Enter Agreement, Off-BS Arrangement, Sale of Shares, Exhibits|
|8-K||2018-12-19||Enter Agreement, M&A, Sale of Shares, Control, Officers, Shell Status, Exhibits|
|8-K||2018-03-23||M&A, Exit Costs, Officers, Control, Shareholder Vote, Exhibits|
|Part I &Mdash; Financial Information|
|Item 1. Financial Statements.|
|Note 1 - Organization and Description of Business|
|Note 2 - Summary of Significant Accounting Policies|
|Note 3 - Going Concern|
|Note 4 - Convertible Note Payable|
|Note 5 - Related Party Transactions|
|Note 6 - Preferred Stock|
|Note 7 - Stock Options|
|Note 8 - Warrants|
|Note 9 - Commitments and Contingencies|
|Note 10 - Subsequent Events|
|Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations|
|Item 3. Quantitative and Qualitative Disclosures About Market Risks|
|Item 4. Controls and Procedures|
|Part Ii&Mdash;Other Information|
|Item 1. Legal Proceedings|
|Item 1A. Risk Factors|
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds|
|Item 3. Defaults Upon Senior Securities|
|Item 4. Mine Safety Disclosures|
|Item 5. Other Information|
|Item 6. Exhibits|
|Balance Sheet||Income Statement||Cash Flow|
|Comparables ($MM TTM)|
|Ticker||M Cap||Assets||Liab||Rev||G Profit||Net Inc||EBITDA||EV||G Margin||EV/EBITDA||ROA|
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|x||QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
For the quarterly period ended June 30, 2019
|¨||TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
For the transition period from to
Commission File Number: 000-53488
PLEDGE PETROLEUM CORP.
(Exact name of registrant as specified in its charter)
|(State or other jurisdiction of||(I.R.S. employer|
|incorporation or organization)||Identification No.)|
576 S. Foothills Plaza Dr. #163
Maryville, Tennessee 37801
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None.
|Title of each class||Trading Symbol(s)||Name of each exchange on which registered|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|Large accelerated filer||¨||Accelerated filer||¨|
|Non-accelerated filer||x||Smaller reporting company||x|
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The Registrant has 484,256,464 shares of common stock outstanding as of August 10, 2019.
PLEDGE PETROLEUM CORP.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In particular, statements contained in this Quarterly Report on Form 10-Q, including but not limited to, statements regarding the sufficiency of our cash, our ability to finance our operations and business initiatives and obtain funding for such activities; our future results of operations and financial position, business strategy and plan prospects, or costs and objectives of management for future acquisitions, are forward looking statements. These forward-looking statements relate to our future plans, objectives, expectations and intentions and may be identified by words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “intends,” ’‘targets,” “projects,” “contemplates,” ’‘believes,” “seeks,” “goals,” “estimates,” ’‘predicts,” ’‘potential” and “continue” or similar words. Readers are cautioned that these forward-looking statements are based on our current beliefs, expectations and assumptions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed, projected or implied in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.
NOTE REGARDING COMPANY REFERENCES
Throughout this Quarterly Report on Form 10-Q, “Pledge,” the “Company,” “we,” “us” and “our” refer to Pledge Petroleum Corp.
PLEDGE PETROLEUM CORP.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
TABLE OF CONTENTS
|PART I—FINANCIAL INFORMATION|
|Item l.||Financial Statements||F-1|
|Condensed Consolidated Balance Sheets as of June 30, 2019 (Unaudited) and December 31, 2018||F-1|
|Unaudited Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2019||F-2|
|Unaudited Condensed Consolidated Statement of Stockholders’ Deficit for the three and six months ended June 30, 2019||F-3|
|Unaudited Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2019||F-4|
|Notes to the Unaudited Condensed Consolidated Financial Statements||F-5|
|Item 2.||Management’s Discussion and Analysis of Financial Condition and Results of Operations||4|
|Item 3.||Quantitative and Qualitative Disclosures About Market Risk||6|
|Item 4.||Controls and Procedures||6|
|PART II—OTHER INFORMATION|
|Item 1.||Legal Proceedings||7|
|Item 1A.||Risk Factors||7|
|Item 2.||Unregistered Sales of Equity Securities and Use of Proceeds||7|
|Item 3.||Defaults Upon Senior Securities||7|
|Item 4.||Mine Safety Disclosures||7|
|Item 5.||Other Information||7|
CONDENSED CONSOLIDATED BALANCE SHEETS
|June 30, 2019||December 31, 2018|
|Prepaid stock compensation – related party||83,333||133,333|
|Total current assets||103,692||165,743|
|Plant and equipment, net||2,233||3,885|
|LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY|
|Accrued expenses and other payables||1,358||11,521|
|Convertible note payable, net of discount of $108,091||47,909||-|
|Due to related parties||137,500||5,890|
|Loan payable – related party||5,000||5,000|
|Total current liabilities||790,637||103,508|
|Commitments and contingencies (Note 9)|
|Stockholders' (Deficit) Equity:|
|Series A Convertible Preferred stock, $0.01 par value; 5,000,000 shares designated, no shares issued and outstanding||-||-|
|Series B Convertible, Redeemable Preferred Stock, $0.001 par value; 500,000 shares designated; 40,000 issued and outstanding. (liquidation preference $480,000)||40||40|
|Series C Convertible, Preferred Stock, $0.001 par value, 4,500,000 shares designated, no shares outstanding||-||-|
|Common stock, $0.001 par value; 500,000,000 shares authorized, 484,256,464 shares issued and outstanding||484,257||484,257|
|Total stockholders' (deficit) equity||(684,712||)||67,870|
|Total Liabilities and Stockholders' (Deficit) Equity||$||105,925||$||171,378|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
|For the Three Months|
Ended June 30, 2019
|For the Six Months|
Ended June 30, 2019
|Compensation – related party||15,000||30,000|
|Non-cash stock compensation – related party||25,000||50,000|
|General and administrative||97,542||235,271|
|Loss from operations||(278,800||)||(577,529||)|
|Other income (expense):|
|Debt discount amortization||(28,438||)||(47,909||)|
|Change in the fair value of convertible debt||4,005||201,158|
|Loss on issuance of convertible debt||(42,143||)||(318,263||)|
|Total other expense, net||(74,696||)||(175,053||)|
|Loss before Provision for Income Taxes||(353,496||)||(752,582||)|
|Provision for Income Taxes||-||-|
|Undeclared Series B and Series C Preferred stock dividends||(7,978||)||(15,869||)|
|Net loss available to common stockholders||$||(361,474||)||$||(768,451||)|
|Net Loss Per Share - Basic and Diluted||$||(0.00||)||$||(0.00||)|
|Weighted Average Number of Shares Outstanding - Basic and Diluted||484,256,464||484,256,464|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ (DEFICIT) EQUITY
For the Three and Six Months Ended June 30, 2019
|Balance, December 31, 2018||-||$||-||40,000||$||40||-||$||-||484,256,464||$||484,257||$||(416,427||)||$||67,870|
|Balance, March 31, 2019||-||-||40,000||40||-||-||484,256,464||484,257||(815,513||)||(331,216||)|
|Balance, June 30, 2019||-||$||-||40,000||$||40||-||$||-||484,256,464||$||484,257||$||(1,169,009||)||$||(684,712||)|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
|For the Six Months |
Ended June 30, 2019
|Cash flow from operating activities:|
|Adjustments to reconcile net loss to net cash used in operating activities:|
|Stock based compensation – related party||50,000|
|Debt discount amortization||47,909|
|Change in the fair value of convertible debt||(201,158||)|
|Loss on issuance of convertible debt||318,263|
|Changes in operating assets and liabilities:|
|Accounts payable and accruals||234,506|
|Due to related parties||131,610|
|Net cash used in operating activities||(165,356||)|
|Cash flows from financing activities:|
|Loan from a related party||6,800|
|Repayment of related party loan||(6,800||)|
|Proceeds from convertible debt||150,000|
|Net cash provided by financing activities||150,000|
|Net decrease in cash||(15,356||)|
|Cash at beginning of period||21,140|
|Cash at end of period||$||5,784|
|Cash paid during the period for:|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
On December 19, 2018, Pledge Petroleum Corp. (the “Company”) entered into a Share Exchange agreement with Renewable Technology Solutions, Inc. (“RTS”). Pursuant to the terms of the agreement, in exchange for 100% of the RTS shares, the Company will issue a stock certificate registered in the name of the RTS stockholder for 250,000,000 shares of its common stock. The transaction will be accounted for as a “reverse acquisition” and recapitalization, with RTS being the accounting acquirer. A reverse merger transaction with a public company is considered and accounted for as a capital transaction in substance; it is equivalent to the issuance of Pledge’s common stock for the net monetary assets of RTS, accompanied by a recapitalization. Accordingly, the accounting does not contemplate the recognition of unrecorded assets of the accounting acquiree, such as goodwill. Consolidated financial statements presented herein reflect the consolidated financial assets and liabilities of the Company at their historical costs, giving effect to the recapitalization, as if it had been RTS during the periods presented.
RTS was incorporated in the State of Tennessee on August 22, 2018. The Company was formed in order to conduct business in the sourcing and implementation of renewable energy technology.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes for the period from August 22, 2018 (date of inception) through December 31, 2018 included on the Company’s Form 10-K. The results of the six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the full year ending December 31, 2019.
In the opinion of management, all adjustments necessary to present fairly the financial position as of June 30, 2019 and the results of operations and cash flows presented herein have been included in the financial statements. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results of operations for the full year.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary RTS. All significant intercompany transactions and balances have been eliminated.
Fair Value of Financial Instruments
The Company follows paragraph 825-10-50-10 of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB ASC (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
Level 1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3: Pricing inputs that are generally unobservable inputs and not corroborated by market data.
The carrying amount of the Company’s financial assets and liabilities, such as cash, prepaid expenses and accrued expenses approximate their fair value because of the short maturity of those instruments. The Company’s notes payable approximates the fair value of such instruments as the notes bear interest rates that are consistent with current market rates.
The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of:
June 30, 2019:
|Description||Level 1||Level 2||Level 3||Total Gains and |
Net Loss per Share
Net loss per common share is computed pursuant to section 260-10-45 of the ASC. Basic net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period. The weighted average number of common shares outstanding and potentially outstanding common shares assumes that the Company incorporated as of the beginning of the first period presented. 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 and six months ended June 30, 2019, all stock options, unvested restricted stock awards, warrants, convertible preferred stock 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.
Recently issued accounting pronouncements
On June 20, 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 is intended to reduce cost and complexity and to improve financial reporting for share-based payments to nonemployees (for example, service providers, external legal counsel, suppliers, etc.). Under the new standard, companies will no longer be required to value non-employee awards differently from employee awards. Meaning that companies will value all equity classified awards at their grant-date under ASC718 and forgo revaluing the award after this date. The guidance is effective for interim and annual periods beginning after December 15, 2018. The adoption of this standard has had no material impact.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The ASU requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. This new guidance will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual reporting periods, and early adoption is permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The adoption of this standard has had no material impact.
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 – GOING CONCERN
The Company’s condensed consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities and commitments in the normal course of business for the foreseeable future. The Company has just begun its operations and does not yet have operations or revenue to cover its operating expenses. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon generating profitable operations in the future and/or to obtain the necessary financing to meet the Company’s obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with debt and equity financing. While the Company believes that it will be successful in obtaining the necessary financing and generating revenue to fund its operations, meet regulatory requirements and achieve commercial goals, there are no assurances that such additional funding will be achieved and that it will succeed in its future operations. The financial statements of the Company do not include any adjustments that may result from the outcome of these uncertainties.
NOTE 4 – CONVERTIBLE NOTE PAYABLE
On January 22, 2019, the Company executed a converted promissory note with Redstart Holdings Corp. (“Redstart”) for $103,000. The note is unsecured, bears interest at 10% per annum and matures on January 22, 2020. The note is convertible, after 180 days, into shares of common stock at the rate of 61% (39% discount) of the average of the lowest three trading prices in the twenty trading days preceding the conversion. The Company bifurcated the conversion feature and accounted for it as a derivative liability. The Company recorded the derivative liability at its fair value of $379,120 based on the Black Scholes Merton pricing model and a corresponding debt discount of $103,000 to be amortized utilizing the interest method of accretion over the term of the note. As of June 30, 2019, the Company fair valued the derivative at $176,915. In addition, $45,150 of the debt discount has been amortized to interest expense.
On June 11, 2019, the Company executed a converted promissory note with Geneva Roth Remark Holdings, Inc. (“Geneva”) for $53,000. The note is unsecured, bears interest at 10% per annum and matures on June 10, 2020. The note is convertible, after 180 days, into shares of common stock at the rate of 61% (39% discount) of the average of the lowest three trading prices in the twenty trading days preceding the conversion. The Company bifurcated the conversion feature and accounted for it as a derivative liability. The Company recorded the derivative liability at its fair value of $95,143 based on the Black Scholes Merton pricing model and a corresponding debt discount of $53,000 to be amortized utilizing the interest method of accretion over the term of the note. As of June 30, 2019, the Company fair valued the derivative at $96,190. In addition, $2,759 of the debt discount has been amortized to interest expense.
A summary of the activity of the derivative liability for the notes above is as follows:
|Balance at December 31, 2018||$||-|
|Increase to derivative due to new issuances||474,263|
|Derivative gain due to mark to market adjustment||(201,158||)|
|Balance at June 30, 2019||$||273,105|
A summary of quantitative information about significant unobservable inputs (Level 3 inputs) used in measuring the Company’s derivative liability that are categorized within Level 3 of the fair value hierarchy for the six months ended June 30, 2019 is as follows:
|Inputs||June 30, 2019||Initial Valuation|
|Stock price||$||0.045||$ 0.0406 – 0.045|
|Conversion price||$||0.0221||$ 0.0105 – 0.0226|
|Volatility (annual)||286.6% - 317.49%||292% - 318.13%|
|Risk-free rate||1.92% - 2.09%||2.05 - 2.59%|
|Years to maturity||.56 – 0.95||1|
The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management
NOTE 5 – RELATED PARTY TRANSACTIONS
On May 2, 2018, the Company issued to each of its three directors, 10,000,000 shares of restricted common stock, vesting as to 1/3 of the grant immediately, 1/3 of the grant on the one-year anniversary of the grant date and 1/3 of the grant on the two-year anniversary of the grant date. The value of the stock has been debited to prepaid stock compensation and will be amortized over the vesting period. As of June 30, 2019, and December 31, 2018, there is $83,333 and $133,333 of prepaid stock compensation, respectively.
The restricted stock granted and exercisable at June 30, 2019 is as follows:
|Restricted Stock Granted||Restricted Stock Vested|
|Grant date price||Number|
The Company recorded an expense of $25,000 and $50,000 for the three and six months ended June 30, 2019, respectively, related to the restricted stock granted to the directors.
As of June 30, 2019 and December 31, 2018, $137,500 and $5,890, respectively, is owed to the three directors of the Company for director fees and various advances for services provided in the normal course of business. All amounts due are unsecured, non-interest bearing and due on demand.
On December 31, 2018, the Company executed a promissory note with John Huemoeller, Chairman, for $5,000. The promissory note is unsecured, bears interest at 5% and is due on or before December 31, 2019.
NOTE 6 – PREFERRED STOCK
Series A-1 Preferred
The Company has designated 5,000,000 preferred shares as Series A-1 Convertible Preferred Stock (“Series A-1 Shares”). Each share of Series A-1 is convertible into ten shares of common stock and has voting rights equal to the number of shares of common stock that holders can convert into. The Series A-1 Shares are non-redeemable by the Company and are entitled to a liquidation preference of $0.08 per share. As of June 30, 2019, there are no shares of Series A-1 Preferred outstanding.
Series B Preferred
The Company has designated 500,000 preferred shares as Series B Convertible Preferred Stock (“Series B Shares”), with 40,000 Series B Shares issued and outstanding as of June 30, 2019, which are convertible into 4,000,000 shares of common stock.
The rights, privileges and preferences of the Series B Shares are summarized as follows:
Each share of the Series B Shares is convertible at any time prior to the issuance of a redemption notice by the Company into such number of shares of Common Stock by dividing the Stated value ($10) of the Series B Shares by $0.10 and is subject to adjustment for dividends or distributions made in common stock, the issue of securities convertible into common stock, stock splits, reverse stock splits, or reclassifications of common stock.
The Company has the right, at any time after the date the Series B Shares have been issued, to redeem all or a portion of any Holder's Series B Shares at a price per Series B Share equal to the issue price per Series B Share multiplied by 120%.
Each holder of Series B Shares is entitled to vote on all matters submitted to a vote of the stockholders of the Company and is entitled to votes equal to the number of shares of Common Stock into which Series B Shares could be converted, and the holders of shares of Series B Shares and Common Stock will vote together as a single class on all matters submitted to the stockholders of the Company.
The holders of the Series B Shares are entitled to receive cumulative dividends at the rate of eight percent per annum of the issue price per share, accrued daily and payable annually in arrears on December 31st of each year. Such dividends accrue on any given share from the day of original issuance of such share. Such dividends are cumulative, whether or not declared by the Board of Directors, but are non-compounding. Any dividend payable on a dividend payment date may be paid, at the option of the Company, either (i) in cash or (ii) in shares of common stock at an issue price of $0.10 per common share. In the event that pursuant to applicable law or contract the Company is prohibited or restricted from paying in cash the full dividends to which the holders of the Series B Shares are entitled, the cash amount available pursuant to applicable law or contract will be distributed among the holders of the Series B Shares ratably in proportion to the full amounts to which they would otherwise be entitled and any remaining amount due to holders of the Series B Shares will be payable in cash.
In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the holders of the Series B Shares are entitled to receive, prior and in preference to any distribution of any assets of the Company to the holders of any other preferred stock of the Company and subordinate to any distribution to the Series A-1 Shares, and prior and in preference to any distribution of any assets of the Company to the holders of the Common Stock, the amount of 120% of the issue price per share. In addition, the Series B holder has agreed to vote to subordinate the series B Preferred stock liquidation preferences to the Series C Preferred stock preferences.
The Company has undeclared dividends on the Series B Preferred stock amounting to $201,096 as of June 30, 2019. 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 takes into account these undeclared dividends.
Series C Preferred
The Company has designated 4,500,000 preferred shares as Series C Convertible Preferred Stock (“Series C Shares”). Each share of Series C is convertible into 120,000,000 shares of common stock and has voting rights equal to the number of shares of common stock that holders can convert into. The Series C Shares are non-redeemable by the Company and are entitled to a liquidation preference. As of June 30, 2019, there are no shares of Series C Preferred outstanding.
NOTE 7 – STOCK OPTIONS
The Company’s Board of Directors approved the Company’s 2008 Stock Option Plan (the “Stock Plan”) for the issuance of up to 5,000,000 shares of common stock to be granted through incentive stock options, nonqualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, restricted stock units and other stock-based awards to officers, other employees, directors and consultants of the Company and its subsidiaries. After the reverse stock split in August 2012, a total of 100,000 shares were available for grant. Subsequent to the reverse split the Board of Directors approved an increase in the number of awards available for grant to 2,100,000 shares. The exercise price of stock options under the Stock Plan is determined by the Board of Directors, and may be equal to or greater than the fair market value of the Company’s common stock on the date the option is granted. Options become exercisable over various periods from the date of grant, and generally expire ten years after the grant date.
At June 30, 2019, there were 54,224 plan options outstanding, under the Stock Option Plan.
The vesting provisions for these stock options are determined by the board of directors at the time of grant, there are no unvested options outstanding as of June 30, 2019.
In the event of the employees’ termination, the Company will cease to recognize compensation expense.
A summary of all of our option activity during the period ended June 30, 2019 is as follows:
|No. of shares||Exercise price|
|From August 22, 2018||-||$||-||$||-|
|Granted - non-plan options||-||-||-|
|Effects of recapitalization from reverse acquisition||57,704||$0.65 to $13.50||3.02|
|Outstanding December 31, 2018||57,704||$0.65 to $13.50||$||3.02|
|Granted - non-plan options||-||-||-|
|Outstanding June 30, 2019||54,224||$0.65 to $12.50||$||2.77|
The options outstanding and exercisable at June 30, 2019 are as follows:
|Options outstanding||Options exercisable|
|Exercise price||No. of shares||Weighted|
|No. of shares||Weighted|
NOTE 8 – WARRANTS
The warrants outstanding and exercisable at June 30, 2019 are as follows:
|Warrants outstanding||Warrants exercisable|
|Exercise price||No. of shares||Weighted|
|No. of shares||Weighted|
average exercise price
No warrants were issued or exercised from August 22, 2018 through June 30, 2019. A total of 2,652,167 warrants have expired during the period from August 22, 2018 through June 30, 2019.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
During the normal course of business, the Company may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits of the case in accordance with FASB ASC 450-20-50, Contingencies. The Company evaluates its exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If the Company determines that an unfavorable outcome is probable and can be reasonably estimated, it establishes the necessary accruals. As of June 30, 2019, the Company is not aware of any contingent liabilities that should be reflected in the unaudited condensed consolidated financial statements.
NOTE 10 – SUBSEQUENT EVENTS
Management has evaluated subsequent events pursuant to the requirements of ASC Topic 855, from the balance sheet date through the date the consolidated financial statements were available to be issued and has determined that there are no material subsequent events that require disclosure in the unaudited condensed consolidated financial statements.
The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our unaudited consolidated financial statements and the notes thereto presented herein and our audited consolidated financial statements and notes thereto for the year ended December 31, 2018 and the other information set forth in our Annual Report on Form 10-K for the period from August 22, 2018 (date of inception) through December 31, 2018 filed with the SEC on April 16, 2019. In addition to historical information, the following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of many factors.
Cautionary Note Regarding Forward-Looking Statements
This report and other documents that we file with the SEC contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about our future performance, our business, our beliefs and our management’s assumptions. Statements that are not historical facts are forward-looking statements. Words such as “expect,” “outlook,” “forecast,” “would,” “could,” “should,” “project,” “intend,” “plan,” “continue,” “sustain,” “on track,” “believe,” “seek,” “estimate,” “anticipate,” “may,” “assume,” and variations of such words and similar expressions are often used to identify such forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and involve risks, assumptions and uncertainties, including, but not limited to, those described in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019 and other reports that we file or furnish with the SEC. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. Except to the extent required by law, we undertake no obligation to update publicly any forward-looking statements after the date they are made, whether as a result of new information, future events, changes in assumptions or otherwise.
Overview and Financial Condition
Our goal is to be a next-generation renewable fuels company. We intend to conduct business in the sourcing and implementation of renewable energy technology.
Our mission is to produce renewable diesel fuel and biochar in a profitable yet sustainable manner, all while building value for our shareholders. We strive to achieve net environmental and social benefits and intend to achieve a negative carbon footprint, by responsibly managing our land use and water resources, and preserving our forests and food sources, while promoting energy independence, job creation and community investment.
Our technology platform is designed to enable us to convert low-cost, abundant and sustainable biomass feedstock (i.e., slash) into diesel. Our renewable diesel, is expected to burn much cleaner than traditional petroleum diesel, and to be chemically indistinguishable from conventional ASTM D975 diesel. Importantly, the renewable diesel we intend to produce will be a “drop-in” diesel; meaning it is a 100% petroleum diesel replacement allowing our renewable diesel to offer significant reduction in our customer’s carbon footprint, without the need for any infrastructure changes.
In addition to renewable diesel, we intend to sell Natura TM, which, as a result of the high temperature it is created at, is a very high-quality biochar. Biochar is used as a soil amendment. Biochar is a stable and solid, rich in carbon, and can endure in soil for thousands of years. Biochar is made by carbonizing renewable organics like wood and grass. Natura TM is a safe and natural product made in the United States. It is a byproduct of our renewable diesel process and provides long-term gains in soil fertility and plant performance, as well as livestock enhancement.
We are fundamentally different from traditional oil and biofuels companies. Unlike traditional oil companies, we intend to generate diesel from completely renewable and sustainable sources rather than depleting fossil fuel reserves. At the same time, we differ from most traditional biofuels companies because our end products are diesel and biochar rather than alcohols or fatty acid methyl esters (“FAME”), such as ethanol or biodiesel. As compared to ethanol, the energy density of one gallon of our renewable diesel equates to 1.7 gallons of ethanol equivalent. While we are a development stage, pre-revenue company, our unique, proven technology platform is anticipated to provide a new domestic source of economic, clean liquid transportation fuel — sustainably — using renewable natural resources to help further energy independence and reduce greenhouse gas emissions.
Management Discussion and Analysis of Financial Condition
Our discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2019, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis we review our estimates and assumptions. Our estimates are based on our historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions.
Results of Operations for the three months ended June 30, 2019
Since inception on August 22, 2018, we have not earned any revenue.
During the three months ended June 30, 2019, we incurred professional fees of $51,258. Professional fees consist primarily of legal, audit and accounting expense.
During the three months ended June 30, 2019, we incurred director fees of $90,000 for our three directors.
During the three months ended June 30, 2019, we incurred related party compensation of $15,000.
During the three months ended June 30, 2019, we recognized $25,000 of non-cash stock-based compensation for the amortization of stock issued to our officers.
During the three months ended June 30, 2019, we incurred total general and administrative (“G&A”) expense of $97,542. Our larger G&A expenses were approximately $75,000 for consulting and $10,500 for D&O insurance.
In addition, we had total other expense of $74,696. This consisted of $8,120 of interest expense, $28,438 for debt discount amortization, and a loss on the issuance of convertible debt of $42,143. These expenses were offset with a gain in the change of the fair value of a derivate of $4,005.
We incurred a net loss of $353,496 for the three months ended June 30, 2019, which consists primarily of the increase in total expenses discussed above.
Results of Operations for the six months ended June 30, 2019
Since inception on August 22, 2018, we have not earned any revenue.
During the six months ended June 30, 2019, we incurred professional fees of $82,258. Professional fees consist primarily of legal, audit and accounting expense.
During the six months ended June 30, 2019, we incurred director fees of $180,000 for our three directors.
During the six months ended June 30, 2019, we incurred related party compensation of $30,000.
During the six months ended June 30, 2019, we recognized $50,000 of non-cash stock-based compensation for the amortization of stock issued to our officers.
During the six months ended June 30, 2019, we incurred total G&A expense of $235,271. Our larger G&A expenses were approximately $160,000 for consulting and $45,500 for D&O insurance.
In addition, we had total other expense of $175,053. This consisted of $10,039 of interest expense, $47,909 for debt discount amortization, and a loss on the issuance of convertible debt of $318,263. These expenses were offset with a gain in the change of the fair value of a derivate of $201,158.
We incurred a net loss of $752,582 for the six months ended June 30, 2019, which consists primarily of the increase in total expenses discussed above.
Net loss available to common stockholders
We incurred a net loss available to common stockholders of $768,451, after undeclared dividends of $15,869, for the six months ended June 30, 2019.
Liquidity and Capital Resources
During the six months ended June 30, 2019, we used cash in operating activities of $165,356. We received $150,000 from the proceeds of convertible notes payable. We also received $6,800 from a related party, which was promptly repaid.
At June 30, 2019, we had a cash balance of $5,784, and liabilities of $790,637. We will need to generate revenue from operations and/or obtain additional financing to pursue our business strategy or to take advantage of opportunities that may arise. These factors raise substantial doubt about our ability to continue as a going concern. To meet our financing needs, we are considering multiple alternatives, including, but not limited to, additional equity financings and, debt financings and/or funding from partnerships. There can be no assurance that we will be able to complete any such transactions on acceptable terms or otherwise.
Off Balance Sheet Arrangements
There are no off balance sheet arrangements.
Critical Accounting Policies
Refer to our Form 10-K for the period from August 22, 2018 (date of inception) through December 31, 2018, for a full discussion of our critical accounting policies.
Recently Issued Accounting Standards
For a discussion of the adoption and potential impacts of recently issued accounting standards, refer to the “Recent Accounting Pronouncements” section of Note 2, in the Notes to condensed consolidated Financial Statements.
|(a)||Evaluation of disclosure controls and procedures|
Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Interim Chief Financial Officer, who also serves as our interim principal financial officer and principal accounting officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate, to allow timely decisions regarding required disclosure. Our Chief Executive Officer and our interim Chief Financial Officer have concluded, that as of the date of the filing of this Quarterly Report, our disclosure controls and procedures are not effective and that all material weaknesses and significant deficiencies have not been completely remediated.
We intend to retain additional individuals to remedy the ineffective controls. However, we cannot assure you that our internal control over financial reporting, as modified, will enable us to identify or avoid material weaknesses in the future.
|(b)||Changes in Internal Control over Financial Reporting|
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our fiscal quarter ended June 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
We are not a party to any material litigation or proceeding and are not aware of any material litigation or proceeding, pending or threatened against us.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and, as such, are not required to provide the information under this Item.
Securities Purchase Agreement dated June 11, 2019 by and Between Pledge Petroleum Corp and Geneva Roth remark Holdings, Inc. (incorporated by reference to Current Report on Form 8-K filed with the Securities and Exchange Commission on June 20, 2019 (File No. 000-53488))
|31.1||Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*|
|31.2||Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*|
|32.1||Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*|
|32.2||Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*|
|101.INS||XBRL Instance Document*|
|101.SCH||XBRL Taxonomy Extension Schema Document*|
|101.CAL||XBRL Taxonomy Extension Calculation Linkbase Document*|
|101.DEF||XBRL Taxonomy Extension Definition Linkbase Document*|
|101.LAB||XBRL Taxonomy Extension Label Linkbase Document*|
|101.PRE||XBRL Taxonomy Extension Presentation Linkbase Document*|
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|Date: August 19, 2019||PLEDGE PETROLEUM CORP.|
|By:||/s/ Christopher Headrick|
|Name: Christopher Headrick|
|Title: Chief Executive Officer and Director|
|(Principal Executive Officer)|
|By:||/s/ John Zotos|
|Name: John Zotos|
|Title: Interim Chief Financial Officer|
|(Principal Financial and Accounting Officer)|