Barrel Energy Inc. - Quarter Report: 2019 December (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
December 31, 2019
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
From transition period from ____ to ____
Commission File No.:
333-201740
BARREL ENERGY, INC. | |
(Exact name of registrant as specified in its charter) |
Nevada | 47-1963189 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
8275 S. Eastern Ave Suite 200 Las Vegas, NV | 89123 | |
(Address of principal executive offices) | (Zip Code) |
(702) 595-2247
(Registrant’s telephone number, including area code)
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 electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
¨ No x
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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer | ¨ | Accelerated filer | ¨ |
Non-accelerated filer | ¨ | Smaller reporting company | x |
Emerging Growth Company | x |
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 x No
As of February 26, 2020 the registrant had 57,486,618 shares of common stock outstanding.
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Reference in this report to “BARREL ENERGY” “we,” “us,” and “our” refer to BARREL ENERGY, Inc.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
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The financial information set forth below with respect to our financial statements for the three months period ended December 31, 2019 and 2018 is unaudited. This financial information, in the opinion of management, includes all adjustments consisting of normal recurring entries necessary for the fair presentation of such data. The results of operations for the nine months ended December 31, 2019 are not necessarily indicative of results to be expected for any subsequent period. Our year end is September 30.
BALANCE SHEETS
December 31, 2019 | September 30, 2019 | |||||||
Unaudited | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 9 | $ | -- | ||||
Prepaid | -- | -- | ||||||
| -- | ||||||||
Total current assets | 9 | -- | ||||||
Right of use lease | 3,969,988 | -- | ||||||
Total assets | 3,969,997 | $ | -- | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Current liabilities: | ||||||||
Bank overdraft | $ | -- | $ | 182 | ||||
Accounts payable and accrued expenses | 463,248 | 315,775 | ||||||
Consulting payable- related parties | 215,513 | 121,425 | ||||||
Advances from shareholder | 31,201 | 48,702 | ||||||
Convertible notes payable- net of discount | 208,458 | 175,494 | ||||||
Notes payable | -- | 100,000 | ||||||
Lease liability | 544,213 | -- | ||||||
Derivative liability | 229,922 | 434,999 | ||||||
Total current liabilities | 1,692,556 | 1,196,577 | ||||||
Lease liability | 3,425,775 | -- | ||||||
Total liabilities | 5,118,332 | 1,196,577 | ||||||
Commitment and Contingencies | ||||||||
Stockholders’ deficit: | ||||||||
Preferred stock, $0.001 par value, 5,000,000 authorized, zero issued and outstanding | ||||||||
Common stock, $0.001 par value, 450,000,000 authorized, 52,486,618 issued and outstanding as of December 31, 2019 and 41,093,618 as of September 30, 2019 | 52,486 | 41,093 | ||||||
Additional paid in capital | 17,419,230 | 870,515 | ||||||
Accumulated other comprehensive loss | (12,770 | ) | (5,361 | ) | ||||
Accumulated deficit | (18,607,281 | ) | (2,102,824 | ) | ||||
Total stockholders’ deficit | (1,148,335 | ) | (1,196,577 | ) | ||||
Total liabilities and stockholders ‘deficit | $ | 3,969,997 | $ | -- | ||||
The accompanying notes are an integral part of these unaudited interim financial statements.
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STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDED DECEMBER 31,
(Unaudited)
Three Months | ||||||||
2019 | 2018 | |||||||
Operating expenses: | ||||||||
Consulting – related parties | $ | 96,000 | $ | 103,333 | ||||
Consulting | -- | 31,500 | ||||||
Rent expense | 150,965 | -- | ||||||
General and administrative expense | 15,932 | 54,736 | ||||||
Loss from operations | (262,897 | ) | (189,569 | ) | ||||
Other income (expense) | ||||||||
Gain on debt forgiveness | (20,600 | ) | -- | |||||
Gain (loss) on currency | 13,759 | (24 | ) | |||||
Change in fair value | 205,077 | (158,022 | ) | |||||
Financing cost | (68,737 | ) | (153,704 | ) | ||||
Interest expense | (7,459 | ) | (6,318 | ) | ||||
Total other income ( expense) | 122,040 | (318,068 | ) | |||||
Net loss | (140,857 | ) | (507,637 | ) | ||||
Foreign currency translation adjustment | (7,409 | ) | 3,421 | |||||
Comprehensive loss | $ | (148,266 | ) | $ | (510,058 | ) | ||
Net loss per common share, Basic and Diluted | $ | (0.00 | ) | $ | (0.02 | ) | ||
Weighted average number of common shares outstanding, basic and diluted | 49,161,871 | 29,828,277 | ||||||
The accompanying notes are an integral part of these unaudited interim financial statements.
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STATEMENTS OF SHAREHOLDERS DEFICIT
(Unaudited)
Common Stock | Additional Paid-In | Accumulated | Stock | Comprehensive | Total Stockholders’ | |||||||||||||||||||||||
Shares | Amount | Capital | Deficit | Receivable | Gain (Loss) | Deficit | ||||||||||||||||||||||
Balance, September 30, 2018 | 12,301,332 | 23,801 | 272,638 | (354,510 | ) | (11,500 | ) | (6,857 | ) | (76,428 | ) | |||||||||||||||||
Common stock issued for cash | 13,502,000 | 25,002 | 998 | -- | -- | -- | 26,000 | |||||||||||||||||||||
Common stock issued for service | 175,000 | 175 | 131,075 | -- | -- | -- | 131,250 | |||||||||||||||||||||
Shares issued for stock receivable | 11,500,000 | (11,500 | ) | -- | -- | 11,500 | -- | -- | ||||||||||||||||||||
Comprehensive gain (loss) | -- | -- | -- | -- | -- | 3,420 | 3,420 | |||||||||||||||||||||
Net loss | -- | -- | -- | (507,637 | ) | -- | -- | (507,637 | ) | |||||||||||||||||||
Balance at December 31, 2018 | 37,478,332 | 37,478 | 404,711 | (862,147 | ) | -- | (3,437 | ) | (423,395 | ) | ||||||||||||||||||
Balance at September 30, 2019 | 41,093,618 | 41,093 | 870,515 | (2,102,824 | ) | -- | (5.361 | ) | (1,196,577 | ) | ||||||||||||||||||
Common stock issued for cash | 2,000,000 | 2,000 | 38,000 | -- | -- | -- | 40,000 | |||||||||||||||||||||
Common stock issued for convertible debt | 9,393,000 | 9,393 | 147,115 | -- | -- | -- | 156,508 | |||||||||||||||||||||
Deemed dividend on warrants | -- | -- | 16,363,600 | (16,363,600 | ) | ---- | ||||||||||||||||||||||
Comprehensive gain (loss) | -- | -- | -- | -- | -- | (7,409 | ) | (7,409 | ) | |||||||||||||||||||
Net loss | -- | -- | -- | (140,857 | ) | -- | -- | (140,857 | ) | |||||||||||||||||||
Balance at December 31, 2019 | 52,486,618 | 52,486 | 17,419,230 | (18,607,281 | ) | -- | (12,770 | ) | (1,148,335 | ) | ||||||||||||||||||
The accompanying notes are an integral part of these unaudited interim financial statements
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BARREL ENGERGY INC
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31,
(Unaudited)
2019 | 2018 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (140,857 | ) | $ | (507,637 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Derivative change in fair value | (205,077 | ) | 158,022 | |||||
Amortization of debt discount | 68,737 | 4,833 | ||||||
Loss on debt settlement | 20,600 | -- | ||||||
Financing cost | -- | 153,704 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts payable and accrued expense | 152,475 | (1,136 | ) | |||||
Bank overdraft | (182 | ) | -- | |||||
Prepaid | --- | 33,333 | ||||||
Due to related party | 94,088 | 9,000 | ||||||
Net cash used in operating activities | (10,216 | ) | (149,881 | ) | ||||
Cash flows from financing activities: | ||||||||
Cash received for the sale of common stock | 40,000 | 26,000 | ||||||
Proceeds from notes payable | -- | 100,000 | ||||||
Proceeds from convertible notes payable | -- | 30,000 | ||||||
Repayment of related party advances and convertible note payable | (17,501 | ) | (9,590 | ) | ||||
Net cash provided by (used in) financing activities | 22,499 | 146,410 | ||||||
Effects of currency translation | (12,274 | ) | 627 | |||||
Net increase (decrease) in cash | 9 | (2,844 | ) | |||||
Cash – beginning of period | -- | 3,458 | ||||||
Cash – end of period | $ | 9 | 614 | |||||
SUPPLEMENT DISCLOSURES: | ||||||||
Interest paid | ||||||||
Income taxes paid | ||||||||
NON CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
Common stock issued for conversion of debt | $ | 156,508 | $ | -- | ||||
Discount recorded on inception of derivatives | $ | -- | $ | 36,000 | ||||
The accompanying notes are an integral part of these unaudited interim financial statements.
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NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - NATURE OF BUSINESS
BARREL ENERGY INC. is a Nevada corporation, incorporated January 17, 2014, which has engaged historically in the oil and gas sector of the energy industry. In January 2019 the Company terminated the agreement. It still maintains its interest in capped oil and gas properties in Alberta Canada. The Company entered into an agreement in the lithium exploration business but terminated the contract. The Company has leased land in central California to grow hemp for extracting CBD and the use of fiber in clothing and other materials.
On April 11, 2019 the Company amended its articles of incorporation to increase its number of authorized shares of common stock from 75,000,000 to 450,000,000.
BASIS OF PRESENTATION
The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information required to be included in a complete set of financial statements in accordance with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended December 31, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2020. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted. The accompanying unaudited financial statements should be read in conjunction with the audited September 30, 2019 financial statements and related notes included in the Company’s form 10-K filed with the SEC.
Basic and diluted net income per share
Basic loss per share is calculated as net loss to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted loss per share for the period equals basic loss per share as the effect of any stock based compensation awards or stock warrants would be antidilutive. As of December 31, 2019 the potential shares at conversion standing was 22,197,802.
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, "Leases (Topic 842)". The amendments in this ASU revise the accounting related to lessee accounting. Under the new guidance, lessees is required to recognize a lease liability and a right-of-use asset for all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2018 and are to be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. The Company has adopted the new accounting pronouncement on October 1, 2019 and is recording a right of use lease asset and lease liability as of December 31, 2019.
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NOTE 2 - GOING CONCERN
The Company’s unaudited interim financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company, as shown in the accompanying balance sheets, has negative working capital and an accumulated deficit of 1,692,547 as of December 31, 2019. The Company has not established any source of revenue to cover its operating costs. These factors raise substantial doubt about the company’s ability to continue as a going concern. The unaudited interim financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company will engage in very limited activities that must be satisfied in cash until a source of funding is secured. The Company will offer noncash consideration and seek equity lines as a means of financing its operations. If the Company is unable to obtain revenue producing contracts or financing or if the revenue or financing it does obtain is insufficient to cover any operating losses it may incur, it may substantially curtail or terminate its operations or seek other business opportunities through strategic alliances, acquisitions or other arrangements that may dilute the interests of existing stockholders.
NOTE 3 - CONVERTIBLE NOTE
On July 1, 2014, the Company issued a USD $67,215 (CAD $75,000) convertible note for cash. The note bears an interest rate of 9.5% and matured on December 31, 2015. The note, plus accrued interest, is convertible by the holder, as, in part or whole, until the date of maturity into common stock of the Company at CAD $0.00275 per share. The note is in default. The Company by resolution has elected to allow conversion of any and all the notes outstanding principal and interest until the note is fully paid. On September 30, 2017 the Company issued 700,000 shares of common stock with a value of $5,612 (CDN $7,000) for partial conversion of the convertible note. As of December 31, 2019, the convertible debt outstanding was USD $22,697 plus accrued interest of USD $27,948 for a total liability of USD $50,645.
On November 12, 2018 the Company issued a $36,000 convertible note to Crown Partners, LLC. The note bears an original discount of $10,000, matures in 12 months from the origination date and bears interest at 5% per annuum. The note is convertible at any time, in part or whole, at $0.50 per share until the 180th date of the note at which time it is convertible at 55% of the market price which is defined as the lowest trading price 25 days prior to conversion. An interest amount of $1,938 has been accrued along with a principal balance of $31,850 as of December 31, 2019
On May 15, 2019 the Company issued a $100,000 convertible note plus 500,000 warrants to Auctus Funding, LLC. The note bears an original discount of $3,500, matures February 17, 2020 and bears interest at 12% per annuum. The note is convertible at any time, at 55% of the market price which is defined as the lowest trading price 25 days prior to conversion. Interest of $1,478 has been accrued as of December 31, 2019. The warrants are convertible at $0.20 per share or if the price of the company’s common stock is greater than the exercise price of the warrant, the warrant may be converted by the holder as a cashless warrant in lieu of a cash warrant. (See Note 6: Warrants)
On May 16, 2019 the Company issued a $125,000 convertible note and 625,000 warrants to Firstfire Global Opportunity Fund, LLC. The note bears an original discount of $12,500, matures in 12 months from the origination date and bears interest at 7% per annuum. The note is convertible in part or whole, at $0.25 per share for the first 180 days or 60% of the market price which is defined as the lowest trading price 20 days prior to conversion. Interest of $1,055 has been accrued as of December 31, 2019. The warrants are convertible at $0.20 per share or if the price of the company’s common stock is greater than the exercise price of the warrant, the warrant may be converted by the holder as a cashless warrant in lieu of a cash warrant. (See Note 6: Warrants)
During the quarter ended December 31, 2019 the Company issued 9,393,000 shares of common stock with a value of $156,508 for the reduction of the notes.
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NOTE 4 - RELATED PARTY
During the period from October 1, 2018 through December 31, 2018 the Company paid the officers consulting fees of $57,000 of which Harp Sangha was paid $42,000 and Craig Alford was paid $15,000. Under the terms of their consulting agreements Mr. Alford is entitled to $21,000 for the period and Mr. Sangha $45,000. As of December 31, 2018 the Company owed the two related parties $9,000 in accrued consulting. In addition the Company paid five individuals consulting fees of $35,500 during the same period. The aggregate due the non-related party consultants per their agreements for the period is $31,500 and one related party $4,000. The terms of the consulting agreements all terminated on or before December 31, 2018 with no future commitments after that date.
During the period ended December 31, 2018 Harpreet Sangha, the Company’s Chairman and Chief Financial Officer, entered into an agreement and purchased 10,000,000 shares of the Company’s common stock for $10,000 and Craig Alford, the Company’s President, who entered into an agreement and purchased 4,000,000 shares of the Company’s common stock for $4,000.
During the year ended September 30, 2019, the Company signed a land lease agreement for the production of hemp. The lease is a 10 year lease with annual payments of $602,000 and was modified for the initial payments of $301,000 each in May and June 2020. A director of the Company is related to the owner of the land leased.
During the quarter ended December 31, 2019 the Company accrued $96,000 in consulting fees for three officers for a total of $215,513 due the related parties.
NOTE 5 - EQUITY
During the period from September 30, 2018 to December 31, 2018, the Company entered into separate Subscription Agreements with 17 persons under which 25,002,000 shares of the Company’s common stock were sold for $0.001 per share plus one person was sold 2,000 shares at $0.50 per share plus an option to purchase 2,000 shares at $0.50 per share. This included Harpreet Sangha, the Company’s Chairman, who entered into an agreement to purchase 10,000,000 shares of the Company’s common stock and Craig Alford, the Company’s President, who entered into an agreement to purchase 4,000,000 shares of the Company’s common stock. Three individuals purchasing a total of 3,250,000 shares of common stock with a value $3,250 are relatives of the company Chairman and CFO. The subscription agreements dated September 30, 2018 for 11,500,000 shares of common stock with a value of $11,500 were treated as stock subscriptions receivable and funds were received in the period ending December 31, 2018. Subscription Agreements were approved by the Company’s Board of Directors. The sales were made in reliance on the exemption provided by Section 4(a)(2) of the Securities Act of 1933 and, with respect to a majority of the purchasers, Regulation S.
On November 13, 2018 the Company entered into a $3,000,000 equity purchase agreement with Crown Bridge Partners. Under the terms of the agreement, the Company may put to the investor shares of the Company common stock in minimums of $10,000 to maximums of either $100,000 or 200% of the average trading volume, whichever is less. The agreement may be terminated at any time by the Company or when the total commitment of shares are sold by the Company to the investor. As part of the agreement, the Company issued 175,000 shares of its common stock at $0.75 per share as a commitment fee. The value of the transaction of $131,250 was expensed as a financing cost.
During the quarter ended December 31, 2019 the Company issued 9,393,000 shares of common stock with a value of $156,508 for debt reduction.
On December 10 2019 the Company issued 2,000,000 shares of common stock to a related party with a value of 40,000 for cash.
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NOTE 6 - WARRANTS
During the year ended September 30, 2019 the Company issued 477,286 warrants to twenty individuals as part of their purchase of 477,286 shares of common stock. The warrants mature in three years and are convertible into one share of common stock for each warrant at $0.50 per share.
During the year ended September 30, 2019 the Company issued 1,125,000 warrants to 2 convertible debt entities as part of the note issued. The warrants were issued as an inducement of the issuance of the two notes for an aggregate of $225,000. The warrants are convertible at $0.20 per share or if the price of the company’s common stock is greater than the exercise price of the warrant, the warrant may be converted by the holder as a cashless warrant in lieu of a cash warrant. The warrants also contain an antidilution clause allowing the holder to adjust the number of warrants and or price should the Company issue any convertible instrument at a lower value or conversion price than the warrants issue.
The Company used the Black Scholes Pricing model to estimate the fair value of the warrants as of grant date, using the following key inputs: market prices of the Company’s common stock at dates of grant between $0.28 - $3.00 per share, conversion price of $0.20-0.50, volatility of 272.63% and discount rate of 2.40%. Based on the fair value of the common stock of $221,000 and value of the warrants of $535,293 the fair value of the warrants was calculated to be 38 % of the total value or $288,411. During the period ended September 30, 2019 the valuation resulted in a deemed dividend from the down round calculation of the 1,125,000 warrants of $30,938.
The 1,125,000 warrants provided a provision that adjusted the conversion price if any other convertible instrument provides for a lower conversion price. As the Company agreed to the conversion price on a convertible note at $0.00275 during the quarter ended December 31, 2019, the warrants became eligible for that conversion price and triggered a down round and deemed dividend of $16,363,600.
The outstanding warrants are set out as follow:
Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contract Life | Intrinsic Value | |||||||||||||
Outstanding at September 30, 2018 | -- | -- | -- | -- | ||||||||||||
Granted | 1,602,286 | 0.29 | 4.32 | -- | ||||||||||||
Expired | -- | -- | -- | -- | ||||||||||||
Exercised | -- | -- | -- | -- | ||||||||||||
Outstanding at December 31, 2019 | 1,602,286 | $ | 0.29 | 4,17 | $ | -- | ||||||||||
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NOTE 7 - NOTES PAYABLE
On November 15, 2018 the Company received an advance from one non-related party for $65,000. On December 3, 2018 the Company received an additional advance of $35,000 from the same individual for a total of $100,000. Both advances are unsecured, on demand and bear no interest. The Company has calculated an imputed interest of $2,500 for the last period. During the quarter ended December 31, 2019 the Company issued 800,000 shares of common stock with a value of $100,000 for the payment of the note and implied interest. The transaction resulted in a loss on settlement of debt of $25,600.
NOTE 8- DERIVATIVE LIABILITIES
On November 12, 2018 the Company issued a $36,000 convertible note to Crown Partners, LLC. The note bears an original discount of $3,500, matures in 12 months from the origination date and bears interest at 5% per annuum. The note is convertible at any time, in part or whole, at $0.50 per share until the 180th date of the note at which time it is convertible at 55% of the market price which is defined as the lowest trading price 25 days prior to conversion. The Company used the Black Scholes model to estimate the fair value of the derivative liability as of the date of issuance and as of December 31, 2019, using the following key inputs: market price of the Company’s common stock $0.20 per share, volatility of 276% and discount rate of 2.00%. The fair value of the derivative liability was determined to $40,002 as of December 31, 2019.
On May 15, 2019 the Company issued a $100,000 convertible note to Auctus Funding, LLC. The note bears an original discount of $3,500, matures February 17, 2020 and bears interest at 5% per annuum. The note is convertible at any time, at 5% of the market price which is defined as the lowest trading price 25 days prior to conversion. The Company used the Black Scholes model to estimate the fair value of the derivative liability as of the date of issuance and as of December 31, 2019, using the following key inputs: market price of the Company’s common stock $0.20per share, volatility of 276% and discount rate of 2.00%. The fair value of the derivative liability was determined to $127,241 as of December 31, 2019.
On May 16, 2019 the Company issued a $125,000 convertible note to FirstFire Global Opportunity Fund, LLC. The note bears an original discount of $12,500, matures in 12 months from the origination date and bears interest at 7% per annuum. The note is convertible at any time, in part or whole, at $0.25 per share or 60% of the market price which is defined as the lowest trading price 20 days prior to conversion. The Company used the Black Scholes model to estimate the fair value of the derivative liability as of the date of issuance and as of December 31, 2019, using the following key inputs: market price of the Company’s common stock $0.20 per share, volatility of 276% and discount rate of 2.00%. The fair value of the derivative liability was determined to $62,679 as of December 31, 2019. On December 3, 2019 the Company issued 93,000 shares of common stock with a value of $7,533 to retire principal and interest of the note
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Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts payable and accrued expenses and shareholder loans. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.
Financial assets and liabilities recorded at fair value in our condensed consolidated balance sheets are categorized based upon a fair value hierarchy established by GAAP, which prioritizes the inputs used to measure fair value into the following levels:
Level 1- Quoted market prices in active markets for identical assets or liabilities at the measurement date.
Level 2- quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable and can be corroborated by observable market data.
Level 3- Inputs reflecting management’s best estimates and assumptions of what market participants would use in pricing assets or liabilities at the measurement date. The inputs are unobservable in the market and significant to the valuation of the instruments.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Financial assets and liabilities measured at fair value on a recurring basis are summarized below as of September 30, 2019 and December 31, 2019:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
As of September 30, 2019: | ||||||||||||||||
Assets | ||||||||||||||||
None | $ | - | $ | - | $ | - | $ | - | ||||||||
Liabilities | ||||||||||||||||
Derivative liability | $ | - | $ | - | $ | 434,499 | $ | 434,499 | ||||||||
As of December 31, 2019: | ||||||||||||||||
Assets | ||||||||||||||||
None | $ | - | $ | - | $ | - | $ | - | ||||||||
Liabilities | ||||||||||||||||
Derivative liability | $ | - | $ | - | $ | 229,922 | $ | 229,922 | ||||||||
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The following table summarizes the change in the fair value of the derivative liability during the three months ended December 31, 2019:
Fair value as of September 30, 2019 | $ | 434,999 | ||
Change in fair value | (205,077 | ) | ||
Fair value as of December 31, 2019 | $ | 229,922 |
NOTE 9 - COMMITMENTS AND CONTINGENCIES
On May 14, 2019 the Company signed a land lease in central California for 602 acres at $1,000 per acre to grow hemp for fiber usage. The lease is for 10 years with annual costs of $602,000 with the initial payment of $301,000 on March 30, 2020 and second payment of $301,000 on June 30, 2020 with the balance of the annual payments being made on April 1 of each subsequent year. The lease holder is a related party to one of the directors of the Company.
The yearly rental obligations including the lease agreements are as follows:
Fiscal Year | ||||
2020 | $ | 451,500 | ||
2021 | $ | 602,000 | ||
2022 | $ | 602,000 | ||
2023 | $ | 602,000 | ||
2024 and years thereafter | 3,612,000 | |||
Total | $ | 5,869,500 | ||
As noted in the recent accounting pronouncements the Company adapted ASC 842 on October 1, 2019 using the modified retrospective approach and has elected the practical expedient package by allowing for historical lease classification for this lease as the date of transition. The present value calculation discount rate used is considered the standard rate at which the Company can borrow funds.
NOTE 10 - SUBSEQUENT EVENTS
On January 14, 2020 the company issued 5,000,000 shares of common stock to two entities with a value of $13,750 for the conversion of debt.
The Company has evaluated subsequent events to determine events occurring after December 31, 2019 through February 26, 2020 that would have a material impact on the Company’s financial results or require disclosure and have determined none exist other than those noted above in this footnote.
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Executive Overview
Barrel Energy Inc (Barrel) was incorporated on January 27, 2014 under the laws of the State of Nevada. The Company was formed to invest in producing oil and gas properties. On September 26, 2014, the Company leased an unproven oil and gas property in the province of Alberta, Canada.
On October 11, 2018, Barrel Energy Inc. (the “Company”) entered into an Earn-In Agreement (the “Agreement”) with True Grit Resources, a British Columbia corporation (“TGR”), an unrelated third party. In exchange for the payment by the Company of certain consideration, the Company may earn of to 100% participation interest in certain mineral rights leases that TGR has in Arizona. The first payment for $100,000 was due within ten (10) days of the execution of the Agreement and another payment of $300,000 or expenditure to the property was due within 30 days of the first payment. Upon receipt of $400,000, the Company will have a 49% participation interest in the Arizona property mineral lease rights .The Company may require a 70% earn-in interest by expending a cumulative $1,400,000 on the property. In order to secure the 100% participation interest, the Company is required to expend a cumulative amount of payments and property expenditures of $2,400,000.
The mineral rights the Company was acquiring is subject to an option agreement dated October 3, 2017 between True Grit and two individuals with beneficial ownership of the mining Permit issued by the State of Arizona in accordance with ARS 27-234. The Company at the date of this filing is unable to confirm that the either the beneficial owners and or True Grit’s claims are current and active. If the Claims cannot be confirmed the earn in agreement may not be valid and may be void. Prior to any payments per the agreement, the Company is requiring from True Grit a statement from the Bureau of Land Management confirming the claims and permits on the property are current and in effect
On November 5, 2018 the Company received an extension for the initial payments of $400,000 of which the initial $100,000 is required to be paid by February 28, 2019.
On January 17, 2019 the Company terminated the Earn-In agreement with True Grit Resources.
On April 11, 2019 the Company amended its articles of incorporation to increase its number of authorized shares of common stock to 450,000,000.
On May 14, 2019 the Company signed a 10 year land lease to grow hemp fiber.
On November 26, 2019, the Company entered into a non-binding Letter of Intent with ZB Holdings, Inc. (“ZB”) to acquire the assets of ZB pursuant to a definitive agreement to be formalized. ZB, , is a consumer products company in the business of producing and marketing sporting goods apparel and safety apparel through a proprietary and trademarked design and production technique.
Under the proposed transaction, the Company will acquire 100% of the assets of ZB, and ZB will acquire 40% of the fully diluted shares of common stock of the Company. The Company’s board of directors will be expanded to 7 members, with three of the directors to be nominees of ZB.
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Completion of the transaction is subject to the execution of a definitive agreement which will contain standard representations, warranties and closing conditions. The transaction is also subject to completion of the audit of ZB’s 2018 and 2019 financial statements as well as renegotiation or repayment of the Company’s existing convertible debt. In addition, a financing of $1,000,000 is required, of which $320,000 is to be advanced to ZB in three tranches over the next 70 days. The transaction may be terminated prior to closing by either party if not completed by March 31, 2020. As of February 21, 2020, the letter of intent remained in effect and the Company has not advance any funds to ZB awaiting the completion of a definitive agreement.
As of the date of this filing no revenues have been recorded for the past two years. Our focus for the next twelve months will be to obtain additional funding to develop and expand our operations and new projects. Our success will depend on our ability to obtain funding through equity and/or debt transactions. However, with the downturn of the United States and world economies, we will encounter substantial competition for the limited financing that will be available in the marketplace. If we are unable to obtain financing, then we will likely delay further development of our unimproved property which is an oil lease in Canada.
In summary, management continues to position the company in a way to best benefit from worldwide economic conditions, trends, events, and demand for new technologies.
Liquidity and Capital Resources
At December 31, 2019, we had an accumulated deficit of $18,607.281. We recorded a net loss of $140,857 for the three months periods ended December 31, 2019 and net loss of $507,637 for the same period in 2018, respectively. Based on these numbers there is substantial doubt that we can continue as a going concern unless we obtain external funding. Management plans to continue limited operations until we obtain additional funding to expand our operations.
Working capital was negative $1,692,547 as of December 31, 2019, compared to negative working capital of $1,196,577 as of September 30, 2019.
Cash used in operations totaled $10,216 during the three months ended December 31, 2019, compared to cash used in operations of $149,881 during the same period in 2018.
Funds provided by financing activities was $22,499 common stock sold for cash of $40,000 offset by repayment of debt related party of $17,501 for the three months period ended December 31, 2019, compared to cash provided by financing activities of $146,410 consisting of stock sold for cash of $26,000, note payable of $100,000 Convertible debt of $30,000 offset by repayment of advances from related party of $9,590 during the same period in 2018.
The effect of foreign currency translation on cash flows was a negative $12,274 for the three months period ended December 31, 2019, compared to a positive of $627 in the same period in 2018.
Management expects to continue to issue common stock to pay for the future development and needs. The purchasers and manner of issuance will be determined according to our financial needs and the available exemptions. We also note that if we issue more shares of our common stock our shareholders may experience dilution in the value per share of their common stock.
We intend to rely on debt and equity financing, capital contributions from management and sales of our common stock to pay for costs, services, operating leases, litigation expense and future development of our business opportunities. Accordingly, our focus for the next twelve months will be to obtain additional funding through debt or equity financing. Our success in obtaining funding will depend upon our ability to sell our common stock or borrow on terms that are financially advantageous to us. If we are unable to obtain financing, then expansion of our operations will be delayed.
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Results of Operations
The Company recorded no revenue during the three months periods ended December 31, 2019 and 2018.
General and administrative expenses for the three months periods ended December 31, 2019 totaled $262,897 compared to $189,569 for the same periods in 2018. The increase loss from operations for the three months in 2019 compared to 2018 was due to the consulting costs paid and accrued of $96,000 along with rent expense of 150,965 and general administrative costs of $15,932 in 2019.
The Company incurred a net loss of $140,857 in the three months periods ended December 31, 2019, compared to net loss of $507,637 for the same periods in 2018. The lower net loss was due to higher general and administrative cost offset by the change in fair value of $205,077 along with lower financing costs in the three months period ended December 31, 2019 compared to the same period in 2018.
Off-Balance Sheet Arrangements
None
Not applicable.
Evaluation of Disclosure Controls and Procedures
Based on their evaluation of our disclosure controls and procedures(as defined in Rule 13a-15e under the Securities Exchange Act of 1934 the "Exchange Act"), our principal executive officer and principal financial officer have concluded that as of the end of the period covered by this quarterly report on Form 10-Q such disclosure controls and procedures were not effective due to the lack of segregation of duties and lack of a formal review process that includes multiple levels of review to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms because of the identification of a material weakness in our internal control over financial reporting which we view as an integral part of our disclosure controls and procedures. The material weakness relates to the lack of segregation of duties in financial reporting, as our financial reporting and all accounting functions are performed by an external consultant with no oversight by a professional with accounting expertise. Our CEO /CFO do not possess accounting expertise and our company does not have an audit committee. This weakness is due to the Company’s lack of working capital to hire additional staff. To remedy this material weakness, we intend to engage another accountant to assist with financial reporting as soon as our finances will allow.
Changes in Internal Control over Financial Reporting
Except as noted above, there have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our first nine months that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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None
None
During the quarter ended December 31, 2019 the Company issued 9,393,000 shares of common stock with a value of $156,508 for debt reduction.
On December 10 2019 the Company issued 2,000,000 shares of common stock to a related party with a value of 40,000 for cash.
None
None
None
No. | Description | |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BARREL ENERGY, INC. | |||
Date: February 26, 2020 | By: | /s/ Craig Alford | |
Craig Alford | |||
President | |||
Chief Executive Officer | |||
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