Dune Oil Corp 10-Q for FY2021 Q2
Dune Oil Corp. (DUNXF)
About this 10-Q
Dune Oil Corp filed this 10-Q on August 17, 2021, covering the quarter ended June 30, 2021 (FY2021 Q2).
Headline figures
Quarter ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.01M
- up 56.4% from $647.9K a year earlier
- Net income
- $1.89M
- compared with a net loss of $792.46K a year earlier
- Diluted EPS
- $0.01
- compared with -$0.01 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
Commission
File Number:
(Exact name of small business issuer as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | N/A | N/A |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 ☐
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data
File required to be submitted and posted 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 and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| (Do not check if a smaller reporting company) | Smaller
reporting 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 ☐
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: The registrant had shares of common stock outstanding as of August XX, 2021.
TRILLION ENERGY INTERNATIONAL INC.
Form 10-Q
Table of Contents
Caption
| Page | ||
| PART I – FINANCIAL INFORMATION | 3 | |
| Item 1. | Financial Statements | 3 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 23 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 28 |
| Item 4. | Controls and Procedures | 28 |
| PART II – OTHER INFORMATION | 29 | |
| Item 1. | Legal Proceedings | 29 |
| Item 1A. | Risk Factors | 29 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 29 |
| Item 3. | Defaults Upon Senior Securities | 29 |
| Item 4. | Mine Safety Disclosures | 29 |
| Item 5. | Other Information | 29 |
| Item 6. | Exhibits | 29 |
| SIGNATURES | 29 | |
| 2 |
PART I
Item 1. Financial Statements
TRILLION ENERGY INTERNATIONAL INC.
Unaudited Interim Condensed Consolidated Balance Sheets
(Expressed in U.S. dollars)
| June 30, 2021 | December 31, 2020 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Receivables | ||||||||
| Prepaid expenses and deposits | ||||||||
| Note receivable | - | - | ||||||
| Total current assets | ||||||||
| Oil and gas properties, net | ||||||||
| Property and equipment, net | ||||||||
| Restricted cash | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Loans payable - current | ||||||||
| Operating lease liability - current | ||||||||
| Total current liabilities | ||||||||
| Asset retirement obligation | ||||||||
| Loans payable – long term | ||||||||
| Convertible debt | - | |||||||
| Derivative liability | ||||||||
| Lease liability | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock Authorized: shares, par value $; issued and outstanding: shares. | ||||||||
| Additional paid-in capital | ||||||||
| Stock subscriptions and stock to be issued | - | |||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
| 3 |
TRILLION ENERGY INTERNATIONAL INC.
Unaudited Interim Condensed Consolidated Statements of Operations and Comprehensive Loss
(Expressed in U.S. dollars)
(unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue | ||||||||||||||||
| Oil and natural gas sales | $ | $ | $ | $ | ||||||||||||
| Cost and expenses | ||||||||||||||||
| Production | ||||||||||||||||
| Depletion | ||||||||||||||||
| Depreciation | ||||||||||||||||
| Accretion of asset retirement obligation | ||||||||||||||||
| Investor relations | ||||||||||||||||
| Stock based compensation | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total expenses | ||||||||||||||||
| Loss before other income (expenses) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses) | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income | ||||||||||||||||
| Finance cost | ( | ) | ( | ) | ||||||||||||
| Foreign exchange gain (loss) | ( | ) | ||||||||||||||
| Other income (expense) | ( | ) | ||||||||||||||
| Loss on debt extinguishment | ( | ) | ( | ) | ||||||||||||
| Change in fair value of derivative liability | ( | ) | ( | ) | ||||||||||||
| Total other income (expenses) | ( | ) | ( | ) | ||||||||||||
| Income(loss) for the period | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Income (loss) per share - basic | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average number of shares outstanding | ||||||||||||||||
| Loss per share - diluted | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average number of shares outstanding | ||||||||||||||||
| Other comprehensive loss: | ||||||||||||||||
| Foreign currency translation adjustments | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Comprehensive income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
See accompanying condensed notes to these interim consolidated financial statements.
| 4 |
TRILLION ENERGY INTERNATIONAL INC.
Unaudited Interim Condensed Consolidated Statements of Stockholders’ Equity
(Expressed in U.S. dollars)
(unaudited)
| Common stock | Additional paid-in | Stock subscriptions and stock to | Accumulated other comprehensive | Accumulated | ||||||||||||||||||||||||
| Shares | Amount | capital | be issued | income (loss) | deficit | Total | ||||||||||||||||||||||
| Balance, December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Stock subscriptions received | – | |||||||||||||||||||||||||||
| Issuance of common stock | ||||||||||||||||||||||||||||
| Issuance of common stock, shares | ||||||||||||||||||||||||||||
| Stock issued for services | ||||||||||||||||||||||||||||
| Stock issued for services, shares | ||||||||||||||||||||||||||||
| Stock issued for debt settlement | ||||||||||||||||||||||||||||
| Stock issued for debt settlement, shares | ||||||||||||||||||||||||||||
| Restricted stock unit grants and vesting | ||||||||||||||||||||||||||||
| Restricted stock unit grants and vesting, shares | ||||||||||||||||||||||||||||
| Warrants exercised | ||||||||||||||||||||||||||||
| Warrants exercised, shares | ||||||||||||||||||||||||||||
| Options exercised | ||||||||||||||||||||||||||||
| Options exercised, shares | ||||||||||||||||||||||||||||
| Conversion of debentures | ||||||||||||||||||||||||||||
| Conversion of debentures, shares | ||||||||||||||||||||||||||||
| Warrants issued for loan | ||||||||||||||||||||||||||||
| Options issued | ||||||||||||||||||||||||||||
| Currency translation adjustment | – | ( | ) | ( | ) | |||||||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, March 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Stock subscriptions received | – | |||||||||||||||||||||||||||
| Issuance of common stock | ( | ) | ||||||||||||||||||||||||||
| Currency translation adjustment | – | ( | ) | ( | ) | |||||||||||||||||||||||
| Net income | – | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
See accompanying condensed notes to these interim consolidated financial statements.
| 5 |
TRILLION ENERGY INTERNATIONAL INC.
Unaudited Interim Condensed Consolidated Statements of Stockholders’ Equity
(Expressed in U.S. dollars)
(unaudited)
| Common stock | Additional paid-in |
Stock subscriptions and stock to |
Accumulated other comprehensive |
Accumulated | ||||||||||||||||||||||||
| Shares | Amount | capital | be issued | income (loss) | deficit | Total | ||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||||||||
| Issuance of common stock | ( |
) | - | - | ||||||||||||||||||||||||
| Stock issued for debt settlement | - | - | - | |||||||||||||||||||||||||
| Stock issued for services | - | - | - | |||||||||||||||||||||||||
| Restricted stock unit grants and vesting | - | - | - | |||||||||||||||||||||||||
| Warrants exercised | - | - | - | |||||||||||||||||||||||||
| Options exercised | - | - | - | |||||||||||||||||||||||||
| Conversion of debentures | - | - | - | |||||||||||||||||||||||||
| Warrants issued for loan | - | - | - | - | ||||||||||||||||||||||||
| Currency translation adjustment | - | - | - | ( |
) | - | ( |
) | ||||||||||||||||||||
| Net loss | - | - | - | - | ( |
) | ( |
) | ||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||||||||
| Issuance of common stock | - | - | - | |||||||||||||||||||||||||
| Stock issued for debt settlement | - | - | - | |||||||||||||||||||||||||
| Warrants exercised | - | - | - | |||||||||||||||||||||||||
| Options exercised | - | - | - | |||||||||||||||||||||||||
| Stock issued for services | - | - | - | |||||||||||||||||||||||||
| Options issued | - | - | - | - | ||||||||||||||||||||||||
| Warrants issued | ||||||||||||||||||||||||||||
| Currency translation adjustment | - | - | - | ( |
) | - | ( |
) | ||||||||||||||||||||
| Net loss | - | - | - | - | ||||||||||||||||||||||||
| Balance, June 30, 2021 | $ |
|
$ | $ | - | $ | ( |
$ | ( |
) | $ | ( |
) | |||||||||||||||
See accompanying condensed notes to these interim consolidated financial statements.
| 6 |
TRILLION ENERGY INTERNATIONAL INC.
Unaudited Interim Condensed Consolidated Statements of Cash Flows
(Expressed in U.S. dollars)
(unaudited)
| Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Operating activities: | ||||||||
| Net loss for the period | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depletion | ||||||||
| Depreciation | ||||||||
| Accretion of asset retirement obligation | ||||||||
| Accretive interest | ||||||||
| Interest from loans payable | ||||||||
| Stock based compensation | ||||||||
| Stock issued for services | ||||||||
| Unrealized foreign exchange gain | ( | ) | ||||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Loss on extinguishment of debt | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Receivables | ( | ) | ||||||
| Prepaid expenses and deposits | ( | ) | ( | ) | ||||
| Accounts payable and accrued liabilities | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities: | ||||||||
| Property and equipment additions | ( | ) | ( | ) | ||||
| Oil and natural gas properties expenditures | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities: | ||||||||
| Proceeds from stock subscriptions received | ||||||||
| Proceeds from exercise of options | ||||||||
| Proceeds from the exercise of warrants | ||||||||
| Proceeds from loans payable | ||||||||
| Repayments of loans payable | ( | ) | ( | ) | ||||
| Lease payments | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ) | ( | ) | ||||
| Change in cash and cash equivalents and restricted cash | ( | ) | ||||||
| Cash and cash equivalents and restricted cash at beginning of period | ||||||||
| Cash and cash equivalents and restricted cash at end of period | $ | $ | ||||||
| Reconciliation of cash, cash equivalents and restricted cash: | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Restricted cash, end of period | ||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Operating lease right-of-use asset addition | $ | $ | ||||||
| Interest paid on credit facilities | $ | $ | ||||||
| Stock issued for debt settlement | $ | $ | ||||||
| Stock issued for debt conversion | $ | $ | ||||||
See accompanying condensed notes to these interim consolidated financial statements.
| 7 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(Expressed in U.S. dollars)
(unaudited)
| 1. | Organization |
Trillion Energy International Inc. and its consolidated subsidiaries, (collectively referred to as the “Company”) is an international oil and natural gas exploration and production company. Our corporate headquarters are located at Turan Gunes Bulvari, Park Oran Ofis Plaza, 180-y, Daire:45, Kat:14, 06450, Oran, Cankaya, Anakara, Turkey. The Company has oil and gas operations in Turkey and an exploration license in Bulgaria. The Company was incorporated in Delaware in 2015.
| 2. | Summary of Significant Accounting Policies |
| (a) | Basis of Presentation and Going Concern |
Basis of Presentation
The unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ended December 31, 2021.
The consolidated balance sheet at December 31, 2020, has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2020.
Going Concern
The Company has suffered recurring losses and negative cash flows from operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company will need to raise funds through either the sale of its securities, issuance of corporate bonds, joint venture agreements and/or bank financing to accomplish its goals. If additional financing is not available when needed, the Company may need to cease operations. The Company may not be successful in raising the capital needed to drill and/or rework existing oil wells. Any additional wells that the Company may drill may be non-productive. Management believes that actions presently being taken to secure additional funding for the reworking of its existing infrastructure will provide the opportunity for the Company to continue as a going concern. Since the Company has an oil producing asset, its goal is to increase the production rate by optimizing its current infrastructure. The accompanying financial statements have been prepared assuming the Company will continue as a going concern; no adjustments to the financial statements have been made to account for this uncertainty.
The recent outbreak of the coronavirus, also known as “COVID-19”, has spread across the globe and is impacting worldwide economic activity. Conditions surrounding the coronavirus continue to rapidly evolve and government authorities have implemented emergency measures to mitigate the spread of the virus. The outbreak and the related mitigation measures has had an adverse impact on global economic conditions as well as on the Company’s business activities. The extent coronavirus has caused a modest drop in economic activity and oil and gas prices, due to reduced demand. The Company has implemented work from home measures for its employees in its offices in Canada and Turkey. The coronavirus has caused delay in realizing the Company’s funding efforts. To which the coronavirus may impact the Company’s business activities in the future will depend on future developments, such as the ultimate geographic spread of the disease, vaccine approvals and effectiveness, the duration of the outbreak, travel restrictions, business disruptions, and the effectiveness of actions taken in Canada and other countries to contain and treat the disease. These events are highly uncertain and as such, the Company cannot determine their financial impact at this time. While certain restrictions are presently in the process of being relaxed, it is unclear when the world will return to the previous normal, if ever. This may adversely impact the expected implementation of the Company’s plans moving forward.
| 8 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(Expressed in U.S. dollars)
(unaudited)
Consolidation
The unaudited interim condensed consolidated financial statements include the accounts of Trillion Energy International Inc. and its wholly-owned subsidiaries Park Place Energy Corp., Park Place Energy Bermuda, BG Exploration EOOD, and Trillion Energy International Inc. All intercompany accounts, transactions and profits were eliminated in consolidation.
| (b) | Use of Estimates |
The preparation of consolidated financial statements 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. The Company regularly evaluates estimates and assumptions related to the estimated useful lives and recoverability of long-lived assets, impairment of oil and gas properties, fair value of stock-based compensation, fair value of derivative liabilities, interest rates used for lease calculations and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. There were no new estimates in the period.
| (c) | Reclassifications |
Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations or cash flow.
| (d) | New Accounting Pronouncements
|
Any recent accounting pronouncements issued by FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s interim condensed consolidated financial statements.
| 3. | Restricted Cash |
The restricted cash relates to drilling bonds provided to GDPA (General Directorate of Petroleum Affairs) for the exploration licenses due to Turkish Petroleum Law. The amounts are for 2% of the annual work budget of the different Turkish licenses which is submitted to GDPA on an annual basis.
| 9 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(Expressed in U.S. dollars)
(unaudited)
| 4. | Oil and Gas Properties |
Schedule of Oil and Gas Properties
| Unproven properties | Proven properties | |||||||||||
| Bulgaria | Turkey | Total | ||||||||||
| December 31, 2019 | $ | $ | $ | |||||||||
| Expenditures | - | |||||||||||
| Depletion | - | ( | ) | ( | ) | |||||||
| Foreign currency translation change | - | |||||||||||
| December 31, 2020 | ||||||||||||
| Expenditures | - | |||||||||||
| Depletion | - | ( | ) | ( | ) | |||||||
| Foreign currency translation change | ( | ) | - | ( | ) | |||||||
| June 30, 2021 | $ | $ | $ | |||||||||
Bulgaria
The
Company holds a
Turkey
Cendere oil field
The
primary asset of the PPE Turkey Companies is the Cendere onshore oil field, which is a profitable oil field located in South East Turkey
having a total of
The Cendere Field is a long-term low decline oil reserve. The Company has a 19.6% interest in the Cendere oil field located in Southeast Turkey. This mature oilfield consistently produces 144 barrels oil per day net to the Company.
At
June 30, 2021,
The South Akcakoca Sub-Basin (“SASB”)
The
Company owns offshore production licenses called the South Akcakoca Sub-Basin (“SASB”). The Company now owns a
| 10 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(Expressed in U.S. dollars)
(unaudited)
Bakuk gas field
The
Company also owns a
| 5. | Property and Equipment |
Schedule of Property and Equipment
| Right-of-use asset | Leasehold improvements | Other equipment | Total | |||||||||||||
| January 1, 2020 | $ | $ | $ | $ | ||||||||||||
| Additions | ||||||||||||||||
| Depreciation | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Disposals | ( |
) | ( |
) | ||||||||||||
| Foreign currency translation change | ( |
) | ( |
) | ||||||||||||
| December 31, 2020 | ||||||||||||||||
| Additions | - | - | ||||||||||||||
| Depreciation | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Disposals | - | - | - | - | ||||||||||||
| Foreign currency translation change | ( |
) | - | - | ( |
) | ||||||||||
| June 30, 2021 | $ | $ | $ | $ | ||||||||||||
| 6. | Loans Payable |
Schedule of Loans Payable
| As at | June 30,2021 | December 31, 2020 | ||||||
| Unsecured,
interest bearing loans at | $ | $ | ||||||
| Unsecured,
interest bearing loans at | ||||||||
| Unsecured,
interest bearing loan at | ||||||||
| Unsecured,
interest bearing loan at | ||||||||
| Unsecured,
interest bearing loan at | - | |||||||
| Non-interest bearing loans | ||||||||
| Total loans payable | ||||||||
| Current portion of loans payable | ( | ) | ( | ) | ||||
| Long term portion of loans payable | $ | $ | ||||||
On
August 2, 2019, Garanti Bank extended a long-term loan to Park Place Turkey Limited in the amount of ₺
On
February 4, 2020, Garanti Bank extended a long-term loan to Park Place Turkey Limited in the amount of ₺
On
March 4, 2021, the Company received $
| 11 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(Expressed in U.S. dollars)
(unaudited)
| 7. | Leases |
The Company leases certain assets under lease agreements. On January 1, 2020 the Company entered into a -year lease for office space, which the Company elected the short-term lease measurement and recognition exemption. On January 3, 2020 the Company entered into a -year lease for an office space that was classified as an operating lease on recognition.
During
the three and six months ended June 30, 2021, the Company recognized operating lease expense of $
Summary of Operating Right-of-use Assets and Lease Liabilities
| Right-of-use asset | June 30, 2021 | December 31, 2020 | ||||||
| Beginning balance | $ | $ | ||||||
| Additions, cost | - | |||||||
| Amortization | ( | ) | ( | ) | ||||
| Foreign currency translation change | ( | ) | ( | ) | ||||
| Net book value | $ | $ | ||||||
Operating
lease liabilities are measured at the commencement date based on the present value of future lease payments. As the Company’s lease
did not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement
date in determining the present value of future payments. The Company used a weighted average discount rate of
Operating lease right-of-use assets include any prepaid lease payments and exclude any lease incentives and initial direct costs incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The lease terms may include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option.
As at June 30, 2021, the Company’s lease liability is as follows:
Schedule of Lease Liability
| Lease liability | June 30, 2021 | December 31, 2020 | ||||||
| Current portion of operating lease liabilities | $ | $ | ||||||
| Long-term portion of operating lease liabilities | ||||||||
| $ | $ | |||||||
Future minimum lease payments to be paid by the Company as a lessee as of June 30, 2021 are as follows:
Summary of Operating Future Minimum Lease Payments
| Operating lease commitments and lease liability | ||||
| Remainder of 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| Total future minimum lease payments | ||||
| Discount | ( | ) | ||
| Total | $ | |||
| 12 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(Expressed in U.S. dollars)
(unaudited)
8. Asset Retirement Obligations
Asset retirement obligations (“AROs”) associated with the retirement of tangible long-lived assets are recognized as liabilities with an increase to the carrying amounts of the related long-lived assets in the period incurred. The fair value of AROs is recognized as of the acquisition date for business combinations. The cost of the tangible asset, including the asset retirement cost, is depleted over the life of the asset. AROs are recorded at estimated fair value, measured by reference to the expected future cash outflows required to satisfy the retirement obligations discounted at the Company’s credit-adjusted risk-free interest rate. Accretion expense is recognized over time as the discounted liabilities are accreted to their expected settlement value. If estimated future costs of AROs change, an adjustment is recorded to both the ARO and the long-lived asset. Revisions to estimated AROs can result from changes in retirement cost estimates, revisions to estimated inflation rates and changes in the estimated timing of abandonment. The Company’s ARO is measured using primarily Level 3 inputs. The significant unobservable inputs to this fair value measurement include estimates of plugging costs, remediation costs, inflation rate and well life. The inputs are calculated based on historical data as well as current estimated costs.
The following is a continuity of the Company’s asset retirement obligations:
Schedule of Asset Retirement Obligations
| June 30, 2021 | December 31, 2020 | |||||||
| Asset retirement obligations at beginning of period | $ | $ | ||||||
| Accretion expense | ||||||||
| Change in estimate | - | - | ||||||
| Asset retirement obligations at end of period | $ | $ | ||||||
9. Convertible Debentures
On
September 30, 2019, the Company closed an unbrokered private placement of convertible debt, issuing $
As the September 30, 2019 convertible debt included an embedded conversion feature denominated in Canadian dollars, the debt was determined to be a financial instrument comprising an embedded derivative representing the conversion feature with a residual host debt component. On initial recognition, the Company used the residual value method to allocate the principal amount of the debentures between the embedded derivative conversion feature and host debt components. The conversion feature was valued first with the residual allocated to the host debt component.
On
initial recognition of the convertible debt granted on September 30, 2019, the Company recognized a derivative liability of $
On
July 1, 2020, the Company amended the conversion price of the convertible debentures. Under the amended terms, they are convertible any
time during the term of the debenture into units (each unit consists of one share and one warrant; each warrant can acquire one share
at an exercise price of $ CAD per share, or approximately US$
On
initial recognition of the convertible debt amended on July 1, 2020, the Company recognized a derivative liability of $
| 13 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(Expressed in U.S. dollars)
(unaudited)
On
September 15, 2020, debt in the principal amount of $
On
March 8, 2021, the Company amended the terms of the convertible debentures such that any warrants issued with the units upon the conversion
of the debentures is exercisable at US$
On
March 8, 2021, the debt in the principal amount of $
On
March 30, 2021, the debt in the principal amount of $
The following is a continuity of the Company’s convertible debt:
Schedule of Convertible Debt and Embedded Derivative Conversion
| Host debt instrument | Embedded conversion feature | Total | ||||||||||
| Balance, January 1, 2020 | $ | $ | $ | |||||||||
| Extinguished during the period | ( | ) | ( | ) | ( | ) | ||||||
| Re-issued during the period | - | |||||||||||
| Allocated to derivative | ( | ) | - | |||||||||
| Accretion | - | |||||||||||
| Change in fair value of derivative | - | ( | ) | ( | ) | |||||||
| Conversion | ( | ) | ( | ) | ( | ) | ||||||
| Foreign currency translation change | ( | ) | - | ( | ) | |||||||
| Balance, December 31, 2020 | ||||||||||||
| Accretion | - | |||||||||||
| Converted to units | ( | ) | ( | ) | ( | ) | ||||||
| Balance, June 30, 2021 | $ | $ | $ | |||||||||
10. Common Stock
For the six months ended June 30, 2021
On
March 8, 2021, the Company closed a non-brokered private placement financing for aggregate gross proceeds of $
On
March 8, 2021, the Company settled a total of $
On
March 8, 2021, the Company closed a private placement for aggregate proceeds of $
| 14 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(Expressed in U.S. dollars)
(unaudited)
On
March 8, 2021, debt in the principal amount of $
On
March 30, 2021, debt in the principal amount of $
On
March 30, 2021, the Company granted restricted share units which vested immediately. In connection with the grant, Common
Shares with a fair value of $
On
March 30, 2021, the Company issued
On
March 30, 2021, the Company issued Common Shares for the exercise of options at $ for gross proceeds of $
On
March 30, 2021, the Company issued Common Shares for the exercise of warrants, with a fair value of $
On
March 30, 2021, the Company issued Common Shares with a fair value of $
On
March 30, 2021, the Company issued Common Shares with a fair value of $
On
April 16, 2021, the Company issued Common Shares for the exercise of
On
April 16, 2021, the Company issued Common Shares with a fair value of $
On
April 16, 2021, the Company issued Common Shares with a fair value of $
On
April 16, 2021, the Company issued
On
April 28, 2021, the Company issued Common Shares at $CAD (approximately US$) per share
for gross proceeds of $
On
April 28, 2021, the Company issued
On
June 28, 2021, the Company issued Common Shares for the exercise of warrants at prices ranging from $CAD - $CAD (approximately US$
On
June 28, 2021, the Company issued Common Shares with a fair value of $
| 15 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(Expressed in U.S. dollars)
(unaudited)
On
June 28, 2021, the Company issued Common Shares with a fair value of $
On
June 28, 2021, the Company issued Common Shares with a fair value of $
On
June 28, 2021, the Company issued
For the year ended December 31, 2020
On
June 19, 2020 the Company closed a non-brokered private placement financing for aggregate gross proceeds of $
On July 31, 2020 the Company closed a non-brokered private placement financing, by:
| ● | issuing
units for cash at a price of $ CAD per unit (approximately US$ per unit), for proceeds of $ | |
| ● | issuing
Units for services, valued at US$ | |
| ● | issuing Units for debt settlement of US$. |
Each
unit was comprised of one Common Share and one Warrant. Each Warrant entitles the holder to purchase one Common Share at a price of $
CAD (approximately US$
On July 31, 2020, the Company granted restricted share units which vested immediately. In connection with the grant, Common Shares with a fair value of $ were issued.
On
September 4, 2020, the Company closed a private placement of units at $ CAD per unit, for gross proceeds of $
On
September 15, 2020, the Company issued units with a fair value of $
On
November 17, 2020, the Company closed a non-brokered private placement financing for aggregate gross proceeds of $
On November 17, 2020, the Company granted restricted share units which vested immediately. In connection with the grant, Common Shares with a fair value of $were issued.
On
December 10, 2020, the Company closed a non-brokered private placement financing for aggregate gross proceeds of $
| 16 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(Expressed in U.S. dollars)
(unaudited)
On
December 17, 2020, the Company closed a non-brokered private placement financing for aggregate gross proceeds of $
On
December 17, 2020, the Company issued for the exercise of stock options. In lieu of cash, the Company settled $
| 6 Months ended June 30, 2021 | 3 Months ended June 30, 2021 | |||||||||||||||||||||||
| Income (Numerator) | Shares (Denominator) | Per-Share Amount | Income (Numerator) | Shares (Denominator) | Per-Share Amount | |||||||||||||||||||
| Basic EPS | ||||||||||||||||||||||||
| Income (loss) | ( | ) | ( | ) | ||||||||||||||||||||
| Effect of Dilutive Securities | ||||||||||||||||||||||||
| Options | ||||||||||||||||||||||||
| Warrants | ||||||||||||||||||||||||
| Diluted EPS | ||||||||||||||||||||||||
| Income (loss) | ( | ) | ( | ) | ||||||||||||||||||||
Options to purchase common shares at $ per share were outstanding during the period ended June 30, 2021 but were not included in the computation of diluted EPS because the options’ exercise price was greater than the average market price of the common shares. The options, which expire on June 22, 2024 () and 2026 (), were still outstanding as at June 30, 2021.
Warrants
to purchase
| 17 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(Expressed in U.S. dollars)
(unaudited)
The Incentive Plan authorizes the following types of awards:
| ● | incentive stock options and nonqualified stock options to purchase Common Stock at a set price per share; | |
| ● | stock appreciation rights (“SARs”) to receive upon exercise Common Stock or cash equal to the appreciation in value of a share of Common Stock; | |
| ● | restricted stock, which are shares of Common Stock granted subject to a restriction period and/or a condition which, if not satisfied, may result in the complete or partial forfeiture of the shares; and | |
| ● | other stock-based awards, which provide for awards denominated in or payable in, valued in whole or in part by reference to, or otherwise based on or related to, shares of Common Stock of the Company, which may include performance shares or options and restricted stock units which provide for shares to be issued or cash to be paid upon the lapse of predetermined restrictions. |
Under the 2013 Plan, the maximum number of shares of authorized stock that may be delivered is % of the total number of shares of common stock issued and outstanding of the Company as determined on the applicable date of grant of an award under the 2013 Plan. Under the 2013 Plan, the exercise price of each option (or other stock-based award) shall not be less than the market price of the Company’s stock as calculated immediately preceding the day of the grant. The vesting schedule for each option or other stock-based award shall be specified by the Board of Directors at the time of grant. The maximum term of options or other stock-based award granted is ten years or such lesser time as determined by the Board of Directors at the time of grant.
The following is a continuity of the Company’s outstanding stock options:
| Number of options | Weighted
average exercise price | ||||||||
| Outstanding, December 31, 2019 | $ | ||||||||
| Granted | |||||||||
| Exercised | ( | ) | |||||||
| Expired | ( | ) | |||||||
| Outstanding, December 31, 2020 | |||||||||
| Granted | |||||||||
| Exercised | ( | ) | |||||||
| Expired | ( | ) | |||||||
| Outstanding, June 30, 2021 | $ | ||||||||
Schedule of Stock Options Outstanding
| Outstanding | Exercise Price | Expiry Date | Vested | ||||||||
| 18 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(Expressed in U.S. dollars)
(unaudited)
As of June 30, 2021, all stock options have fully vested. The weighted average remaining contractual life of outstanding stock options is years. The aggregate intrinsic value of the stock options at June 30, 2021 is $.
For the six months ended June 30, 2021, the Company recognized $in stock-based compensation expense (2020 - $) for options granted and vested. At June 30, 2021, the Company has unrecognized compensation expense related to stock options.
The following is a continuity of the Company’s outstanding stock purchase warrants:
Schedule of Stockholders' Equity Note, Warrants or Rights, Activity
| Number
of warrants |
Weighted average exercise price | |||||||
| Outstanding, December 31, 2019 | $ | |||||||
| Issued | ||||||||
| Expired | ( |
) | ||||||
| Outstanding, December 31, 2020 | ||||||||
| Issued | ||||||||
| Exercised | ( |
) | ||||||
| Expired | ( |
|||||||
| Outstanding, June 30, 2021 | $ | |||||||
At June 30, 2021, the Company had the following outstanding stock purchase warrants:
Schedule of Warrant Outstanding
| Outstanding | Exercise Price | Expiry Date | ||||||
| USD | ||||||||
| USD | ||||||||
| USD | ||||||||
| USD | ||||||||
| USD | ||||||||
| USD | ||||||||
The
weighted average remaining contractual life of outstanding warrants as at June 30, 2021 is
The
Company’s warrants which are exercisable in Canadian dollars are considered to be derivative financial instruments as they have
an exercise price denominated in a currency other than the Company’s functional currency of the US dollar. Under US GAAP, the Company
is required to present these warrants as derivative liabilities on the balance sheet and to measure them at fair value at the end of
each reporting period. As at June 30, 2021, the balance of the derivative liability associated with these warrants is $
| 19 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(Expressed in U.S. dollars)
(unaudited)
On
March 8, 2021, in connection with a private placement of units, the Company issued
On
March 8, 2021, in connection with a debt settlement, the Company issued
On
June 7, 2021, in connection to a prior private placement in which warrants were owed to certain subscribers, the Company issued
The following is a continuity of the Company’s derivative warrant liability:
Schedule of Derivative Warrant Liability
| Total | ||||
| Balance, January 1 and December 31, 2020 | $ | |||
| Issued during the period | ||||
| Extinguished during the period | ( | ) | ||
| Change in fair value of derivative | ||||
| Balance, June 30, 2021 | $ | |||
14. Restricted Stock Units
During
the six months ended June 30, 2021, the Company granted restricted stock units (“RSUs”) as consideration for management
and consulting contracts. The RSUs were valued at $
For the three and six months ended June 30, 2021, the Company recognized $ (2020 – $) in stock-based compensation expense for RSUs granted and vested. At June 30, 2021, the Company has unrecognized compensation expense related to RSUs.
| Number of restricted stock units | Weighted average fair value per award | ||||||||
| Balance, December 31, 2019 | $ | ||||||||
| Granted | |||||||||
| Vested | ( | ) | |||||||
| Balance, December 31, 2020 | |||||||||
| Granted | |||||||||
| Vested | ( | ) | |||||||
| Balance, June 30, 2021 | $ | ||||||||
| 20 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(Expressed in U.S. dollars)
(unaudited)
15. Related Party Transactions
At
June 30, 2021, accounts payable and accrued liabilities included $
During
the six months ended June 30, 2021, $
16. Segment Information
The Company’s operations are in the resource industry in Bulgaria and Turkey with head offices in the United States and a satellite office in Sofia, Bulgaria. The Company’s operating segments include a head office in Canada, oil and gas operations in Turkey and oil and gas properties located in Bulgaria.
Schedule of Financial Information for Geographical Segments
| As at and for the period ended June 30, 2021 | ||||||||||||||||
| Bulgaria | North America | Turkey | Total | |||||||||||||
| Revenue | ||||||||||||||||
| Oil and natural gas sales | $ | $ | $ | $ | ||||||||||||
| Cost and expenses | ||||||||||||||||
| Production | ||||||||||||||||
| Depletion | ||||||||||||||||
| Depreciation | ||||||||||||||||
| Accretion of asset retirement obligation | ||||||||||||||||
| Stock based compensation | ||||||||||||||||
| General and administrative and investor relations | ||||||||||||||||
| Total expenses | ||||||||||||||||
| Loss before other income (expenses) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses) | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ||||||||||||
| Interest income | ||||||||||||||||
| Finance cost | ( | ) | ( | ) | ||||||||||||
| Foreign exchange gain (loss) | ( | ) | ( | ) | ||||||||||||
| Other income (expense) | ( | ) | ( | ) | ||||||||||||
| Change in fair value of derivative liability | ( | ) | ( | ) | ||||||||||||
| Loss on debt extinguishment | ( | ) | ( | ) | ||||||||||||
| Total other income (expenses) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss for the period | $ | ( | ) | ( | ) | $ | ( | ) | ( | ) | ||||||
| Long lived assets | $ | $ | $ | $ | ||||||||||||
| 21 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
(Expressed in U.S. dollars)
(unaudited)
As at and for the period ended June 30, 2020
| ||||||||||||||||
| Bulgaria | North America | Turkey | Total | |||||||||||||
| Revenue | ||||||||||||||||
| Oil and natural gas sales | $ | $ | $ | $ | ||||||||||||
| Cost and expenses | ||||||||||||||||
| Production | ||||||||||||||||
| Depletion | ||||||||||||||||
| Depreciation | ||||||||||||||||
| Accretion of asset retirement
obligation | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total (recovery) expenses | $ | $ | $ | $ | ||||||||||||
| Income (loss) before other income (expenses) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other income (expenses) | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign exchange gain (loss) | ||||||||||||||||
| Change in fair value of derivative Liability | ||||||||||||||||
| Total other income (expense) | $ | $ | ( | ) | $ | $ | ||||||||||
| Net Income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Long lived assets | $ | $ | $ | $ | ||||||||||||
17. Subsequent Events
On
July 6, 2021, the Company announced that it is electing to accelerate all Warrants issued in 2020. The Warrants issued in 2020 contain
the following language: “In the event that company’s share prices close at a price of CAD $ per share for a period of
On July 20, 2021, the Company issued Common Shares at $ CAD per share for gross proceeds of $15,000 CAD.
On
August 6, 2021, the Company issued shares, as a result of the exercise of
| 22 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide readers of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Our MD&A is presented in the following sections:
| ● | Executive Summary | |
| ● | Results of Operations | |
| ● | Liquidity and Capital Resources | |
| ● | Forward-Looking Statements. |
Our MD&A should be read in conjunction with our unaudited financial statements of Trillion Energy International Inc. (“Trillion Energy”, Company”, “we”, and “our”) and related Notes in Part I, Item 1 of the Quarterly Report on Form 10-Q and Item 8, Financial Statements and Supplementary Data, of the Annual Report on Form 10-K for the year ended December 31, 2020.
Our website can be found at www.trillionenergy.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed with or furnished to the U.S. Securities and Exchange Commission (“SEC”), pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”), can be accessed free of charge by linking directly from our website under the “Investor Relations - SEC Filings” caption to the SEC’s Edgar Database.
Executive Summary
Trillion Energy International Inc. is focused on its oil and gas producing assets in Turkey and a coal bed methane exploration license in Bulgaria.
Turkey
As at June 30, 2021, net production to us from such fields was 144 barrels of oil equivalent per day or Boe/d.. With this base of operations in Turkey and its experienced management team, the Company is poised to exploit these assets and for further growth in the region.
At June 30, 2021, the gross oil production rate for the producing wells in Cendere was 1,086 bbls/day; the average daily 2021 gross production rate for the field was 1,086 bbls/day. At the end of June 2021, oil is currently sold at a price of approximately US$70.94 per barrel for a netback per barrel of approximately US$41.78/bbl. At June 30, 2021, the Cendere field was producing 122 barrels of oil per day net to the PPE Turkey; and averaged 139 barrels per day during 2021 net to the us.
SASB has four producing fields, each with a production platform plus subsea pipelines that connect the fields to an onshore gas plant. The SASB fields are located off the north coast of Turkey towards the western end of the Black Sea. Total gross production to date from the four fields is approximately 41.8 Bcf.
As at June 30, 2021, the gross gas production rate for the remaining producing wells in SASB was 0.972 MMcfd; the average daily 2021 gross production rate for the field was 0.710 MMcfd. The average gas sale price year to date was, US$5.05/Mcf and US$4.72 per Mcf for the quarter ending June 30, 2021, for a netback per Mcf of approximately minus US$0.56. The lower net back is a result of relatively lower production levels being incurred due to natural decline, down approximately 96% since peak production rates occurred during 2011, given no new wells have been drilled since 2011. The Company anticipates that as new wells come online, the netback will increase substantially. At the end of June 2021, gas is currently sold at a price of approximately $5.24/MCF.
| 23 |
The Company continues to produce gas from SASB as a loss to avoid shutting down the field and facilities. Commencing in November 2021, the Company plans to commence a revitalization program by drilling new wells, which may ramp up production and generate positive net backs and earnings.
The current drilling schedule is dependant upon the timing of receipt of significant investment capital, to finance the program, and is tentatively scheduled to commence later this year or Q1 2022, due to COVID and other delays. A total of approximately 17 new wells are contemplated to be drilled in stages which include production and exploration wells. 3-D seismic will be reprocessed to delineate existing targets and expand the drilling program, as 13 additional targets have been identified and merit further study. Those additional targets may result in additional reserves and resources.
In March 2021, the Company announced its plans to investigate around the SASB development license area, which is currently 12,385 hectares, by applying for a Technical Investigation Survey Permit for 200,000 hectares of surrounding area (“the Permit”). Upon receiving the Permit, the Company plans to reprocess existing 3D and 2D seismic with new technology. Such new technology is expected to improve the resolution of the data and define new exploration targets around the SASB.
Bulgaria license
In October of 2010, the Company was awarded an exploration permit for the “Vranino 1-11 Block”, a 98,205 acre oil and gas exploration land located in Dobrudja Basin, Bulgaria, by the Bulgarian Counsel of Ministers. On April 1, 2014, the Company entered into an Agreement for Crude Oil and Natural Gas Prospecting and Exploration in the Vranino 1-11 Block with the Ministry of Economy and Energy of Bulgaria (the “License Agreement”). The initial term of the License Agreement is five years. This five-year period will commence once the Bulgarian regulatory authorities approve of the Company’s work programs for the permit area. The License Agreement (or applicable legislation) provides for possible extension periods for up to five additional years during the exploration phase, as well as the conversion of the License Agreement to an exploitation concession, which can last for up to 35 years. Under the License Agreement, the Company will submit a yearly work program that is subject to the approval of the Bulgarian regulatory authorities.
Before the license for the Bulgarian CBM project is “effective”, the Company’s overall work program and first year annual work program must be approved by both the Bulgarian environmental ministry and the energy ministry. The Company is currently working on an environmental assessment in order to finalize the exploration permit.
Strategic Focus
Our focus currently is obtaining funding to produce our reserves in our oil and gas fields in Turkey, which we expect will generate significant cash-flow and profits for the Company. Further development is contingent upon receiving further funding, and our plan is to further develop the fields when funding is received. The Bulgaria license area holds great upside attraction as a potential coal bed methane exploration project. The license area was extensively drilled for coal exploration from 1964 to 1990. It was determined that coal mining was not technically feasible. However, the coal exploration drilling provided us with an extensive database.
Results of Operations
The following summary of our results of operations should be read in conjunction with our unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2021 and 2020 which are included herein.
Revenue
For the three months ended June 30, 2021, the Company had oil and gas revenue of $1,013,255, compared to $647,902 for the three months ended June 30, 2020. Revenue increased mainly due to the increase in production and also due to the increase in oil price. Oil and gas revenue denominated in Turkish Liras was ₺8,422,441 for three months ended June 30, 2021, compared to ₺ 4,436,366 for the three months ended June 30, 2020.
For the six months ended June 30, 2021, the Company had oil and gas revenue of $1,957,817, compared to $1,279,464 for the six months ended June 30, 2020. Revenue increased mainly due to the increase in production and also due to the increase in oil price. Oil and gas revenue denominated in Turkish Liras was ₺15,396,727 for six months ended June 30, 2021, compared to ₺ 8,292,053 for the six months ended June 30, 2020.
| 24 |
Expenses
For the three months ended June 30, 2021, the Company incurred production expenses related to its Turkey operations of $601,633 (2020 - $593,058), depletion charges of $66,354 (2020 - $69,794), depreciation expense of $6,801 (2020 - $5,272) and asset retirement obligation accretion expense of $102,772 (2020 - $93,106). Production expenses increased by $8,575 largely due to increase in production volumes as discussed above. Depletion and depreciation expenses were consistent with the prior period. Accretion of asset retirement costs increased by $9,666 for the three months ended June 30, 2021 primarily due to revaluation of the asset retirement obligation at December 31, 2020 which increased the carrying value of the obligation.
For the six months ended June 30, 2020, the Company incurred production expenses related to its Turkey operations of $1,234,134 (2020 - $1,199,412), depletion charges of $135,573 (2020 - $136,245), depreciation expense of $13,808 (2020 - $12,974) and asset retirement obligation accretion expense of $203,038 (2020 - $183,942). Production expenses increased by $34,722 largely due to increase in production volumes as discussed above. Depletion and depreciation expenses were consistent with the prior period. Accretion of asset retirement costs increased by $19,096 for the six months ended June 30, 2021 primarily due to revaluation of the asset retirement obligation at December 31, 2020 which increased the carrying value of the obligation.
For the three months ended June 30, 2021, the Company had general and administrative expenses of $547,179, compared to $436,445 for the three months ended June 30, 2020. $281,847 in expenses were from the North American head office and $265,332 for the Turkey office.
For the six months ended June 30, 2021, the Company had general and administrative expenses of $1,030,803, compared to $780,363 for the six months ended June 30, 2020. $602,930 in expenses were from the North American head office and $427,873 for the Turkey office.
For the three months ended June 30, 2021, the Company had investor relations expenses of $639,425, compared to $211,999 for the three months ended June 30, 2020. $639,425 in expenses were from the North American head office and $nil for the Turkey office.
For the six months ended June 30, 2021, the Company had investor relations expenses of $723,574, compared to $211,999 for the six months ended June 30, 2020. $723,574 in expenses were from the North American head office and $nil for the Turkey office.
Other Income (Expense)
For the three months ended June 30, 2021, the Company had other income of $2,965,901 compared to other expenses of $30,685 for the three months ended June 30, 2020. Other income for the three months ended June 30, 2021 consists mainly of the change in the fair value of the derivative liability of $3,032,128. The derivative liability arises from the Company’s warrants which are exercisable in Canadian dollars as they have an exercise price denominated in a currency other than the Company’s functional currency of the US dollar.
For the six months ended June 30, 2021, the Company had other expenses of $6,036,635 compared to other income of $25,186 for the six months ended June 30, 2020. Other expenses for the six months ended June 30, 2021 consists mainly of the loss from the change in the fair value of the derivative liability of $5,698,468. The derivative liability arises from the Company’s warrants which are exercisable in Canadian dollars as they have an exercise price denominated in a currency other than the Company’s functional currency of the US dollar. Over the period, the value of the derivative liability increased substantially as a result of the increase in the Company’s share price from $0.06 as at December 31, 2020 to a $0.24 as at June 30, 2021. The Company has changed its policy from denominating warrants in CND to USD, to avoid future derivative liabilities being recorded in the future.
Net Income (Loss)
The changes in overall net income or loss for the three and six months ended June 30, 2021, compared to the three and six months ended June 30, 2020 a result of the factors as described above.
| 25 |
Liquidity and Capital Resources
The following table summarizes our liquidity position:
| June 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| Cash | $ | 1,084,701 | $ | 202,712 | ||||
| Working capital | 117,571 | (1,057,725 | ) | |||||
| Total assets | 7,697,629 | 6,487,261 | ||||||
| Total liabilities | 14,124,319 | 7,929,696 | ||||||
| Stockholders’ equity | (6,426,690 | ) | (1,442,435 | ) | ||||
Cash Used in Operating Activities
Net cash used in operating activities for the six months ended June 30, 2021 was $644,792, compared to $708,011 cash used in operating activities for the six months ended June 30, 2020. The current period loss of $7,581,039 was offset by $7,163,455 in net non-cash items and $227,208 in changes in working capital items for the six months ended June 30, 2021. This compares to a prior year loss of $1,220,285, offset by $327,481 in net non-cash items and $184,793 in changes in working capital items.
Cash Used in Investing Activities
Net cash used in investing activities for the six months ended June 30, 2021 was $7,122, compared to $95,403 used for the six months ended June 30, 2020. Oil and gas properties expenditures increased to $6,800 from $3,408 in the comparative period whereas property and equipment expenditures decreased to $322 from $91,995 in the comparative period.
Cash Provided by Financing Activities
We have funded our business to date from sales of our common stock through private placements and loans from shareholders.
Net cash provided by financing activities for the six months ended June 30, 2021 was $1,630,401, compared to $599,459 for the six months ended June 30, 2020. Cash provided by financing activities in the current period was primarily related to $1,246,384 in proceeds for the issuance of shares related to private placements and warrant and option exercises. The Company also received a $500,000 loan during the period. In the comparative period cash from financing activities was primarily related to $533,443 in stock subscriptions received related to a private placement and a new bank loan in the Company’s Turkey subsidiary.
Future Operating Requirements
Based on our current plan of operations, we estimate that we will require approximately $12,000,000 to cover our plan of operations over the next 12 months. We plan to spend approximately $50,000 on an environmental report for Bulgaria Vranino exploration block. We also plan to improve our working capital surplus by raising cash and paying off accounts payable and notes for $600,000. We will require approximately $11,350,000 for drilling wells at SASB.
Our current plan of operations is the drilling of up to five (5) new wells at SASB and to reenter three existing wells to perform workovers to increase gas production. An additional 9 wells are planned to be drilled after these first eight wells are drilled. Depending on the timing of the drilling operations at our current interest (currently 49%), we project we will incur up to an additional $16 to $25 million in capital expenditures of which approximately $12,000,000 will be incurred over the next 12 months to enable us to conduct such operations.
As of June 30, 2021 the Company had unrestricted cash of $1,084,701 and current liabilities of $2,243,540. The Company is attempting to raise additional capital to fund its future exploration and operating requirements.
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Off-Balance Sheet Arrangements
On October 1, 2018 the Company entered into an agreement to grant to a consultant of the Company a 2% (two percent) gross overriding royalty on petroleum substances produced from certain of its currently undeveloped exploration properties, namely: Block 1-11 Vranino situated in Dobrich District, Bulgaria and seven contiguous exploration licences in the province of Hakkari Yuksekova Semdiali Derecik, Turkey. The Grant of the royalty agreement was for services involving technical and corporate advisory services.
On October 1, 2018 the Company entered into an agreement to grant to the CEO of the Company a 0.5% (one half of one percent) gross overriding royalty on petroleum substances produced from certain of its currently undeveloped exploration properties, namely: Block 1-11 Vranino situated in Dobrich District, Bulgaria and seven contiguous exploration licences in the province of Hakkari Yuksekova Semdiali Derecik, Turkey. The Grant of the royalty agreement was for services involving technical and corporate advisory services.
Forward-Looking Information
Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of applicable U.S. securities legislation. Additionally, forward-looking statements may be made orally or in press releases, conferences, reports, on our website or otherwise, in the future, by us or on our behalf. Such statements are generally identifiable by the terminology used such as “plans,” “expects,” “estimates,” “budgets,” “intends,” “anticipates,” “believes,” “projects,” “indicates,” “targets,” “objective,” “could,” “should,” “may” or other similar words.
By their very nature, forward-looking statements require us to make assumptions that may not materialize or that may not be accurate. Forward-looking statements are subject to known and unknown risks and uncertainties and other factors that may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by such statements, including the factors discussed under Item 1A. Risk Factors in our most recent Annual Report on Form 10-K. Such factors include, but are not limited to, the following: fluctuations in and volatility of the market prices for oil and natural gas products; the ability to produce and transport oil and natural gas; the results of exploration and development drilling and related activities; global economic conditions, particularly in the countries in which we carry on business, especially economic slowdowns; actions by governmental authorities including increases in taxes, legislative and regulatory initiatives related to fracture stimulation activities, changes in environmental and other regulations, and renegotiations of contracts; political uncertainty, including actions by insurgent groups or other conflicts; the negotiation and closing of material contracts; future capital requirements and the availability of financing; estimates and economic assumptions used in connection with our acquisitions; risks associated with drilling, operating and decommissioning wells; actions of third-party co-owners of interests in properties in which we also own an interest; our ability to effectively integrate companies and properties that we acquire; our limited operating history; our history of operating losses; our lack of insurance coverage; and the other factors discussed in other documents that we file with or furnish to the U.S. Securities and Exchange Commission. The impact of any one factor on a particular forward-looking statement is not determinable with certainty as such factors are interdependent upon other factors and our course of action would depend upon our assessment of the future, considering all information then available. In that regard, any statements as to: future oil or natural gas production levels; capital expenditures; the allocation of capital expenditures to exploration and development activities; sources of funding for our capital expenditure programs; drilling of new wells; demand for oil and natural gas products; expenditures and allowances relating to environmental matters; dates by which certain areas will be developed or will come on-stream; expected finding and development costs; future production rates; ultimate recoverability of reserves, including the ability to convert probable and possible reserves to proved reserves; dates by which transactions are expected to close; future cash flows, uses of cash flows, collectability of receivables and availability of trade credit; expected operating costs; changes in any of the foregoing and other statements using forward-looking terminology are forward-looking statements, and there can be no assurance that the expectations conveyed by such forward-looking statements will, in fact, be realized.
Although we believe that the expectations conveyed by the forward-looking statements are reasonable based on information available to us on the date such forward-looking statements were made, no assurances can be given as to future results, levels of activity, achievements or financial condition.
Readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described above, as well as others not now anticipated. The foregoing statements are not exclusive and further information concerning us, including factors that potentially could materially affect our financial results, may emerge from time to time. We do not intend to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable because we are a smaller reporting company.
Item 4. Controls and Procedures
Evaluation of Disclosure of Controls and Procedures
We carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2021 (the “Evaluation Date”). This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, we concluded that our disclosure controls and procedures were effective.
We believe that our consolidated financial statements contained in our Quarterly Report on Form 10-Q for the period ended June 30, 2021 fairly present our financial condition, results of operations and cash flows in all material respects.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently involved in any legal proceedings and we are unaware of any pending proceedings.
Item 1A. Risk Factors
Not applicable because we are a smaller reporting company. See risk factors described in Item 1A of the Company’s most recent Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mining Safety Disclosures
Not applicable.
Item 5. Other Information
None.
| Item 6. | Exhibits | |
| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended | |
| 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended | |
| 32.1 | Certification of 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 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 | The Company’s unaudited Condensed Consolidated Financial Statements and related Notes for the quarterly period ended June 30, 2021 from this Quarterly Report on Form 10-Q, formatted in XBRL (extensible Business Reporting Language). |
| 29 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| TRILLION ENERGY INTERNATIONAL INC. | ||
| By: | /s/ “Arthur Halleran” | |
| Arthur Halleran | ||
| President and CEO (Principal Executive Officer) | ||
| Date: August 16, 2021 | ||
| By: | /s/ “David Thompson” | |
| David Thompson | ||
| Chief Financial Officer (Principal Financial Officer) | ||
| Date: August 16, 2021 |
| 30 |
Exhibit 31.1
Rule 13a-14(a)/15d-14(a) Certification
I, Arthur Halleran, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021 of Trillion Energy International Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting
Date: August 16, 2021
| /s/ Arthur Halleran | |
| Arthur Halleran, Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 31.2
Rule 13a-14(a)/15d-14(a) Certification
I, David Thompson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021 of Trillion Energy International Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 16, 2021
| /s/ David Thompson | |
| David Thompson, Chief Financial Officer | |
| (Principal Financial Officer) |
Exhibit 32.1
Section 1350 Certification
In connection with the Quarterly Report on Form 10-Q of Trillion Energy International Inc., (the “Company”) for the quarterly period ended June 30, 2021 as filed with the U.S. Securities and Exchange Commission (the “Report”), I, Arthur Halleran, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| Date: August 16, 2021 | /s/ Arthur Halleran |
|
Arthur Halleran, Chief Executive Officer (Principal Executive Officer) |
This certification accompanies this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
Exhibit 32.2
Section 1350 Certification
In connection with the Quarterly Report on Form 10-Q of Trillion Energy International Inc., (the “Company”) for the quarterly period ended June 30, 2021 as filed with the U.S. Securities and Exchange Commission (the “Report”), I, David Thompson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| Date: August 16, 2021 | /s/ David Thompson |
|
David Thompson, Chief Financial Officer (Principal Financial Officer) |
This certification accompanies this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.