Trillion Energy International Inc. - Quarter Report: 2016 September (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2016

For the transition period from                  to                     

Commission File Number: 000-55539

PARK PLACE ENERGY INC.

(Exact name of small business issuer as specified in its charter)

(214) 220-4340

Registrant’s telephone number, including area code

N/A

(Former name, former address and former fiscal year, if changed since last report)

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  ☒    No  ☐

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).    Yes  ☒     No  ☐

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 49,981,482 shares of common stock as of December 9, 2016.

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PARK PLACE ENERGY INC.

Form 10-Q

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PART I

Item 1. Financial Statements

PARK PLACE ENERGY INC.

Consolidated Balance Sheets

See accompanying notes to consolidated financial statements.

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PARK PLACE ENERGY INC.

Consolidated Statements of Operations

(unaudited)

See accompanying notes to consolidated financial statements.

PARK PLACE ENERGY INC.

Consolidated Statements of Comprehensive Loss

(unaudited)

See accompanying notes to consolidated financial statements.

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PARK PLACE ENERGY INC.

Consolidated Statement of Stockholders’ Equity

(unaudited)

See accompanying notes to consolidated financial statements.

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PARK PLACE ENERGY INC.

Consolidated Statements of Cash Flows

(unaudited)

See accompanying notes to consolidated financial statements.

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PARK PLACE ENERGY INC.

Notes to the Consolidated Financial Statements

(unaudited)

These consolidated financial statements are unaudited and have been prepared from the books and records of Park Place Energy Inc. and its consolidated subsidiaries (“Park Place”, the “Company”, “we”, or “our”). In our opinion, all normal and recurring adjustments necessary for a fair presentation of the financial position of the Company as of September 30, 2016, and the results of operations for the three and nine months ended September 30, 2016 and 2015, and cash flows for the nine months ended September 30, 2016 and 2015, have been made in conformity with generally accepted accounting principles. All significant intercompany accounts and transactions have been eliminated. These interim financial statements and notes are condensed as permitted by the instructions to Form 10-Q and should be read in conjunction with the audited consolidated financial statements of the Company included in its Form 10-K for the year ended December 31, 2015.

The Company computes loss per share of Company stock in accordance with ASC 260 (“Earnings per Share”), which requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing the loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes dilutive potential shares if their effect is anti-dilutive. For the three and nine months ended September 30, 2016 and 2015, the Company had 15,903,940 and 15,893,940, respectively, and 14,810,645 and 14,450,563, respectively, in potentially dilutive shares outstanding that were excluded for the diluted EPS calculation, respectively.

As shown in the accompanying consolidated financial statements, the Company has no revenues and has incurred continuous losses from operations and had an accumulated deficit of $18,200,545 at September 30, 2016. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is actively pursuing new ventures to increase revenues. In addition, the Company is currently seeking additional sources of capital to fund short term operations. The Company, however, is dependent upon its ability to secure equity and/or debt financing and there are no assurances that the Company will be successful, therefore, without sufficient financing it would be unlikely for the Company to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. The financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

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The Company holds a 98,205 acre oil and gas exploration claim in the Dobrudja Basin located in northeast Bulgaria. The Company intends to conduct exploration for natural gas and test production activities over a five year period in accordance with or exceeding its minimum work program obligation. The Company intends to commence its work program efforts once it receives all regular regulatory approvals of its work programs.

In April 2015, the Company loaned $38,570 to a Bulgarian company pursuant to a revolving credit facility, enabling such Bulgarian company to buy and manage land in Bulgaria to be leased by the Company for future well sites. The credit facility has a maximum loan obligation of BGN 1,000,000 ($574,880) at September 30, 2016), bears interest at 6.32%, has a five-year term and is secured by the land the Bulgarian company buys. Payment on the facility is due the earlier of the end of the five-year term (April 6, 2020) or demand by the Company. As of September 30, 2016 and 2015 the outstanding balance on the loan obligation was $40,919 and $39,490, respectively.

The Company entered into a share purchase agreement on December 22, 2015 to acquire the three subsidiaries of Tiway Oil B.V. (“Tiway”), a company currently in bankruptcy in the Netherlands. These Tiway subsidiaries are oil and gas exploration and production companies operating in the Republic of Turkey. They own interests in three producing oil and gas fields, one offshore and two onshore, as well as a number of exploration licenses and operate one of the onshore fields. Current production for the Tiway subsidiaries is about 300 Boe/d (barrels per day equivalent); as of September 30, 2016, year-to-date production has averaged 417 Boe/d. The purchase price is $2.1 million USD and the Company paid at signing a $500,000 deposit toward the purchase price.

The transaction is subject to obtaining the approval of two regulatory agencies in Turkey, the GDPA which regulates the oil and gas licenses and EMRA which regulates gas marketing. Both approvals have now been obtained. During the period prior to closing, in consultation with the Tiway staff and partners in the various fields, the Company has prepared work programs for 2017 and into the future.

The transaction was originally scheduled to close March 31, 2016. However, the transaction is conditioned on receiving the EMRA and GDPA regulatory approvals. Accordingly, the closing date has been extended a number of times to allow sufficient time to secure the approvals from the respective regulatory agencies, most recently to December 15, 2016. To facilitate closing, the Company has formed a new wholly owned subsidiary, Park Place Energy (Bermuda) Ltd. which will become the acquirer of the shares of the Tiway subsidiaries at closing. Closing on the transaction is expected to occur prior to December 31, 2016 or in January 2017 now that both regulatory approvals have been received.

Two of the Company’s shareholders provided loans to the Company totaling $52,500 during the nine months ended September 30, 2016. The loans are repayable upon demand.

In March 2016, the Company received subscriptions for 250,000 shares of common stock at $0.10 per share for total proceeds of $25,000 which is included in stock subscriptions received. In April 2016, the Company received subscriptions for 500,000 shares of common stock at $0.10 per share for total proceeds of $50,000. The Company issued 4,250,000 shares of common stock in April for the stock subscriptions received during 2015 and the nine months ended September 30, 2016.

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The following table summarizes the Company’s stock options as of September 30, 2016.

Additional information regarding stock options as of September 30, 2016, is as follows:

Option expense recorded as stock-based compensation for the nine months ended September 30, 2016 and 2015 was $4,722 and $20,729, respectively. At September 30, 2016, the Company had $13,806 in unrecognized compensation expense related to stock options that will be expensed through January 2019.

During the third quarter 2016, the Company amended and restated the terms of the 11,000,000 stock purchase warrants with an exercise price of $0.20 per share issued in 2013 to extend the expiration date one year from August 27, 2016 to August 27, 2017. No other conditions of the warrants were amended. The amended and restated warrants vested immediately. The Company recognized expense of $3,421,501 related to the amendment and restatement of the warrants.

During the nine months ended September 30, 2016, the Company granted 520,939 restricted stock units (“RSUs”) with vesting periods ranging from fourteen to nineteen months and a fair value of $144,687 to officers of the Company. In addition, the Company extended the vesting date for 685,957 RSUs to December 1, 2016. Expense related to RSUs is recognized ratably over the vesting period.

For the nine months ended September 30, 2016 and 2015, restricted stock expense recorded as stock-based compensation was $42,399 and $35,333, respectively, and capitalized stock based compensation was $60,115 and $48,790, respectively.

At September 30, 2016 unrecognized compensation expense related to RSUs totaled $56,531 that will be recognized over a weighted average period of approximately five months.

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The Company’s operations are in the resource industry in Bulgaria with head offices in the United States and a satellite office in Sofia, Bulgaria. The Company operates as a single reportable segment and its oil and gas properties are located in Bulgaria.

The Company is subject to United States federal and state income taxes at a rate of 34%. The reconciliation of the provision for income taxes at the United States federal statutory rate compared to the Company’s income tax expense as reported is as follows:

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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:

Our MD&A should be read in conjunction with our unaudited financial statements of Park Place Energy Inc. (“Park Place”, 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, 2015.

Our website can be found at www.parkplaceenergy.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

Park Place is an energy company engaged in oil and gas exploration in Bulgaria.

On November 12, 2015, Park Place became the successor registrant to Park Place Energy Corp, a Nevada corporation (“PPEC Nevada”), following a reincorporation merger, approved by the stockholders of PPEC Nevada to provide a better organizational structure for future acquisitions and management of operations. See Park Place’s Annual Report on Form 10-K for the year ended December 31, 2015 for more information on the reincorporation.

The Company holds a 98,205 acre oil and gas exploration claim in the Dobrudja Basin located in northeast Bulgaria. The Company intends to conduct exploration for natural gas and test production activities in accordance with or exceeding its minimum work program obligation. The Company intends to commence its work program efforts once it receives all regulatory approvals of its work programs and the five year license term commences.

On August 26, 2014, the Bulgarian environmental agency approved the Company’s overall work program and first year annual work program. A number of parties appealed the decision of the environmental agency and an appeal proceeding was commenced before an administrative judge panel. Since then, there have been several hearings resulting in a number of appellants being dismissed and empaneling a panel of experts to confirm the correctness of the approval by the environmental agency. The Company is participating in that proceeding as an interested party. The Company is continuing its data gathering, evaluation and planning, has acquired the land for a future well site and has commissioned an environmental baseline survey of the license area. The initial term of the License Agreement will not begin until (i) the appeal proceeding is completed and the decision upheld, (ii) the Bulgarian energy agency has approved the Company’s work programs and (iii) the license term commences.

The Company entered into a share purchase agreement on December 22, 2015 to acquire the three subsidiaries of Tiway Oil B.V. (“Tiway”), a company currently in bankruptcy in the Netherlands. These Tiway subsidiaries are oil and gas exploration and production companies operating in the Republic of Turkey. They own interests in three producing oil and gas fields, one offshore and two onshore, as well as a number of exploration licenses and operate one of the onshore fields. Current production for the Tiway subsidiaries is about 315 Boe/d (barrels per day equivalent); as of September 30, 2016, year-to-date production has averaged 417 Boe/d. The purchase price is $2.1 million USD and the Company paid at signing a $500,000 deposit toward the purchase price.

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The transaction is subject to obtaining the approval of two regulatory agencies in Turkey, the GDPA (which regulates the oil and gas licenses) and EMRA (which regulates gas marketing). Both regulatory approvals have now been received.

The transaction was originally scheduled to close March 31, 2016. The closing date has been extended a number of times to allow sufficient time to secure the approvals from the respective regulatory agencies. Currently, the transaction has been extended to December 15, 2016. To facilitate closing, the Company has formed a new wholly owned subsidiary, Park Place Energy (Bermuda) Ltd. which will become the acquirer of the shares of the Tiway subsidiaries. Closing on the transaction will occur prior to December 31, 2016 or in January 2017 now that both regulatory approvals have been received.

Results of Operations

The following summary of our results of operations should be read in conjunction with our unaudited consolidated financial statements for the periods ended September 30, 2016 and 2015, which are included herein.

Revenue

We are a pre-revenue stage company, and our future revenues depend upon successful exploration of oil and gas assets.

Expenses

For the three months ended September 30, 2016, our general and administrative expenses increased over the comparable prior year period. For the nine months ended September 30, 2016, our general and administrative expenses increased to $3,803,323 from $587,460 for the same period in 2015.

During the third quarter 2016, the Company amended and restated the terms of the warrants issued in 2013 to extend the expiration date one year from August 27, 2016 to August 27, 2017. No other conditions of the warrants were amended. The amended and restated warrants vested immediately. The Company recognized expense of $3,421,501 related to the amendment and restatement of the warrants.

Excluding the stock-based compensation charge, our overhead decreased from last year primary because the Company has been in a holding pattern waiting for the Tiway transaction to close and waiting for clearance of all regulatory hurdles in Bulgaria to commence work on the Vranino 1-11 license.

Other Income/Expense

Foreign exchange rate fluctuations resulted in a loss of $12 for the three months ended September 30, 2016 compared to a loss of $1,066 for the three months ended September 30, 2015. For the nine months ended September 30, 2016 and 2015, other income was $1,887 and other expenses were $39,138, respectively, due to a foreign exchange loss.

Loss

Our net loss for the three months ended September 30, 2016 was $3,520,381 compared to a loss of $57,507 for the three months ended September 30, 2015. The increase in net loss was primarily due a revaluation of warrants issued in 2013 charge for the period. Our net loss for the nine months ended September 30, 2016 was $3,801,436 compared to a loss of $506,598 for the nine months ended September 30, 2015. The increase in net loss was primarily due a revaluation of warrants issued in 2013 described above.

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Liquidity and Capital Resources

The following table summarizes our liquidity position:

Cash Used in Operating Activities

We used net cash of $148,649 in operating activities for the nine months ended September 30, 2016 compared to $678,399 for the nine months ended September 30, 2015. The decrease was due to decreased activities in all areas of operations.

Cash Flow from Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2016 was $41,344 compared to $369,826 for the nine months ended September 30, 2015. This decrease was primarily due to decreased expenditures on both the Bulgarian project and the Tiway acquisition.

Cash Provided by Financing Activities

We have funded our business to date primarily from sales of our common stock through private placements. During the nine months ended September 30, 2016, we received cash of $75,000 for stock subscriptions. We did not have any common stock sales during the nine months ended September 30, 2015. Two of the Company’s shareholders provided loans to the Company totaling $52,500 during the nine months of 2016. The loans are repayable upon demand.

Future Operating Requirements

Based on our current plan of operations, we estimate that we will require approximately $3.6 million to pursue our plan of operations over the next 12 months: $1.6 million to close the acquisition of the Tiway companies, $1.1 million for planned work programs on assets owned by the Tiway companies post-acquisition and $900,000 for ongoing operating costs and corporate expenditures.

The Company has no revenues and has incurred continuous losses from operations and had an accumulated deficit of $18,200,545 at September 30, 2016. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is actively pursuing new ventures to increase revenues. In addition, the Company is currently seeking additional sources of capital to fund short term operations and fund the Tiway acquisition. The Company, however, is dependent upon its ability to secure equity and/or debt financing and there are no assurances that the Company will be successful, therefore, without sufficient financing it would be unlikely for the Company to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. The financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

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Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

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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Not applicable because we are a smaller reporting company.

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 September 30, 2016 (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 periods ended September 30, 2016 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.

PART II – OTHER INFORMATION

We are not currently involved in any legal proceedings and we are unaware of any pending proceedings, except that the Company is a participant as an interested party in opposition to the appeals that have been filed in Bulgaria against the Bulgarian environmental agency that approved the Company’s overall work program and first year annual work program.

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.

None.

None.

Not applicable.

None

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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.

PARK PLACE ENERGY INC.

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