CoJax Oil & Gas Corp 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONTENTS PAGE Report of Independent Registered Public Accounting Firm 42 Financial Statements: Consolidated Balance Sheets as of December 31, 2021, and December 31, 2020 43 Consolidated Statements of Operations for the years ended December 31, 2021, and December 31, 2020 44 Consolidated Statements of Cash Flows for the years ended December 31, 2021, and December 31, 2020 45 Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2021, and 2020 46 Notes to Consolidated Financial Statements 47 – 59 41 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of CoJax Oil & Gas Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of CoJax Oil & Gas Corporation (the Company) as of December 31, 2021 and 2020, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Substantial Doubt about the Company’s Ability to Continue as a Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a negative working capital that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2 . The financial statements do not include any adjustments that might result from the outcome of this uncertainty Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. \s\ Haynie & Company We have served as the Company’s auditor since 2019. Salt Lake City, Utah June 13, 2022 Firm ID 457 42 CoJax Oil and Gas Corporation Consolidated Balance Sheets As of December 31, 2021, and December 31, 2020 As of As of December 31, 2021 December 31, 2020 ASSETS Current assets: Cash $ 12,098 $ 44,051 Prepaid expenses 91,667 - Total current assets 103,765 44,051 Other assets: Barrister property rights 2,700,000 2,700,000 Barrister asset retirement obligation - net 79,802 79,802 Total other assets 2,779,802 2,779,802 Total assets $ 2,883,567 $ 2,823,853 LIABILITIES and STOCKHOLDERS ’ DEFICIT Current liabilities: Accounts payable $ 46,261 $ 17,799 Accrued interest payable - 2,410 Accrued M&A expense payable - 620,500 Notes payable – SBA PPP – current portion 51,663 49,992 Notes payable – related party - 127,615 Accrued salaries and payroll taxes 696,452 611,714 Total current liabilities 794,376 1,430,030 Long -term liabilities: Barrister asset retirement obligation 84,566 82,149 Notes payable – SBA PPP 39,994 - Note payable – Barrister acquisition - 2,700,000 Tota l long -term liabilities 124,560 2,782,149 Total liabilities 918,936 4,212,179 Stockholders ’ deficit: Preferred stock, $0.10 par value, 50,000,000 current shares authorized, 30,000 Series A shares, $0.01 par value issued and outstanding, respectively. 300 - Common stock, $0.01 par value, 300,000,000 current shares authorized, 5,780,576 and 3,659,001 shares issued and outstanding, respectively. 57,806 36,590 Additional paid-in capital 4,803,049 (18,588) Accumulated deficit (2,896,524) (1,406,328) Total stockholders ’ equity 1,964,631 (1,388,410) Total liabilities and stockholders ’ equity $ 2,883,567 $ 2,823,853 See accompanying notes to consolidated financial statements. 43 CoJax Oil and Gas Corporation Consolidated Statements of Operations For the years ending December 31, 2021, and December 31, 2020 For the Year Ended For the Year Ended December 31, 2021 December 31, 2020 Revenues $ 8,160 $ - Expenses: General & administrative expenses 1,461,534 1,349,653 Operating expenses 31,918 10,215 Accretion expense 2,416 2,347 Total expenses 1,495,868 1,362,215 Loss from operations (1,487,708) (1,362,215) Other income (expense): Interest income 12 - EIDL grant - 1,000 Miscellaneous expense (45) - Interest expense (2,455) (2,081) Total other income (expense) (2,488) (1,081) Net loss $ (1,490,196) $ ( 1 , 36 3 ,296) Net loss per common share - basic and diluted $ (0.35) $ (3.10) Weighted average number of common shares outstanding during the period - basic and diluted 4, 269 , 524 440,308 See accompanying notes to consolidated financial statements. 44 CoJax Oil and Gas Corporation Consolidated Statements of Cash Flows For the years ending December 31, 2021, and December 31, 2020 Year Ended Year Ended December 31, 2021 December 31, 2020 Cash flows from operating activities: Net loss $ (1,490,196) $ (1,363,296) Common stock issued for services and salaries 755,173 - Adjustments to reconcile net loss to net cash used in operations: Amortization of asset retirement obligation 2,416 2,347 Accounts payable 28,462 8,909 Prepaid expense (91,667) - Accrued M&A expense - 620,500 Accrued salaries and payroll taxes 687,194 611,714 Accrued interest payable - 2,081 Total adjustments to reconcile net loss to net cash provided by operations 1, 381 , 578 1,245,551 Net cash used in operating activities ( 108 , 618 ) (117,745) Cash flows from investing activities : - - Cash flows from financing activities: Proceeds from loans payable – related party - 65,615 Proceeds from loans payable – SBA PPP loan 41,665 49,992 Proceeds from sale of common stock 35,000 18,000 Net cash provided by financing activities 76 ,665 133,607 Net increase (decrease) in cash (31,953) 15,862 Cash at beginning of period 44,051 28,189 Cash at end of period $ 12,098 $ 44,051 Supplemental disclosure of non-cash investing and financing activities: Note payable – Barrister acquisition $ - $ 2,700,000 Common stock issued for note payable debt exchange $ 2,700,000 $ - Common stock issued for related party notes payable and interest $ 132,480 $ - Common stock issued for accrued expenses $ 620,500 $ - Addition of asset retirement obligation $ - $ 82,149 Preferred stock issued for accrued compensation $ 600,000 $ - See accompanying notes to consolidated financial statements. 45 CoJax Oil and Gas Corporation Consolidated Statements of Stockholder’s (Deficit) For the years ending December 31, 2021, and December 31, 2020 Additional Total Preferred stock Common stock paid-in Accumulated Stockholder’s Shares Amount Shares Amount capital deficit deficit Balance, December 31, 2019 - $ - 1 $ - $ 2 $ (43,032) $ (43,030) Sale of common stock for cash - - 9,000 90 17,910 - 18,000 Shares issued - Barrister acquisition - - 3,650,000 36,500 (36,500) - - Net (loss) for the year ending December 31, 2020 - - - - - (1,363,296) ( 1 , 363 ,296) Balance, December 31, 2020 - $ - 3,659,001 $ 36,590 $ (18,588) $ (1,406,328) $ (1,388,326) Sale of common stock for cash - - 17,500 175 34,825 - 35,000 Share-based vendor payments and compensation - - 677 , 836 6 , 77 9 1, 348 , 894 - 1, 355 , 67 3 Preferred shares issued for accrued compensation 30,000 3 0 0 - - 59 9 , 700 - 600,000 Share-based compensation - - 10,000 100 19,900 - 20,000 Shares issued – note payable debt exchange - - 1,350,000 13,500 2,686,500 - 2,700,000 Shares issued – note payable debt exchange – related party 66,240 662 131,818 - 132,480 Net (loss) for the year ending December 31, 2021 - - - - - $ (1,490,196) $ (1,490,196) Balance, December 31, 2021 30 ,000 $ 3 0 0 5, 780 , 577 $ 57 , 80 6 $ 4, 803 , 049 $ (2,896,524) $ 1, 964 , 631 See accompanying notes to consolidated financial statements. 46 CoJax Oil and Gas Corporation Notes to Consolidated Financial Statements December 31, 2021 NOTE 1 – ORGANIZATION, NATURE OF OPERATIONS AND BASIS OF PRESENTATION Organization CoJax Oil & Gas Corporation, a Virginia corporation (“Company”), was incorporated on November 13, 2017. Nature of Operations We are an early development stage company. From November 13, 2017, we have been engaged in organizational activities and had no revenue-generating operations until the period covered by this current report. We have begun to acquire assignments of hydrocarbon revenues and underlying oil and gas exploration and production rights. Basis of Presentation The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) which contemplate the continuation of the Company as a going concern. NOTE 2 – GOING CONCERN DISCLOSURE The Company’s financial statements are prepared using U.S. GAAP applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business. During 2020, the Company has acquired Barrister Energy and correspondingly expects to be generating revenue during its exploration stage. There can be no assurance that the Company will be able to achieve its business plan, raise any additional capital, or secure the additional financing necessary to implement its current operating plan. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The Company has yet to achieve profitable operations, expects to incur further losses in the development of its business, has negative cash flows from operating activities, and is dependent upon future issuances of equity or other financings to fund ongoing operations, all of which raises substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing from stockholders or other sources to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related party advances, however, there is no assurance of additional funding being available or on acceptable terms, if at all. NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates 47 The preparation of financial statements in conformity with generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant areas of estimate include the impairment of assets and rates for amortization, accrued liabilities, future income tax obligations, and the inputs used in calculating stock-based compensation and transactions. Actual results could differ from those estimates and would affect future results of operations and cash flows. Cash and Cash Equivalents The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. At December 31, 2021, and December 31, 2020, the Company had no cash equivalents. Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable will consist primarily of oil and gas sales, net of a valuation allowance for doubtful accounts. As of December 31, 2021, and the year ended December 31, 2020, the allowance for doubtful accounts was $0. Oil and Gas Producing Activities The Company uses the successful efforts method of accounting for oil and gas activities. Under this method, the costs of productive exploratory wells, all development wells, related asset retirement obligation assets, and productive leases are capitalized and amortized, principally by field, on a units-of-production basis over the life of the remaining proved reserves. Exploration costs, including personnel costs, geological and geophysical expenses, and delay rentals for oil and gas leases are charged to expense as incurred. Exploratory drilling costs are initially capitalized but charged to expense if and when the well is determined not to have found reserves in commercial quantities. Unproved oil and gas properties will be assessed annually to determine whether they have been impaired by the drilling of dry holes on or near the related acreage or other circumstances, which may indicate a decline in value. When impairment occurs, a loss will be recognized. When leases for unproved properties expire, the costs thereof, net of any related allowance for impairment, will be removed from the accounts and charged to expense. The Company will review its proved oil and natural gas properties for impairment whenever events and circumstances indicate that a decline in the recoverability of its carrying value may have occurred. It estimates the undiscounted future net cash flows of its oil and natural gas properties and compares such undiscounted future cash flows to the carrying amount of the oil and natural gas properties to determine if the carrying amount is recoverable. If the carrying amount exceeds the estimated undiscounted future cash flows, the Company will adjust the carrying amount of the oil and natural gas properties to fair value. Impairment or Disposal of Long-Lived Assets The Company accounts for the impairment or disposal of long-lived assets according to the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 360 “Property, Plant and Equipment”. ASC 360 clarifies the accounting for the impairment of long-lived assets and for long- 48 lived assets to be disposed of, including the disposal of business segments and major lines of business. Long-lived assets are reviewed when facts and circumstances indicate that the carrying value of the asset may not be recoverable. When necessary, impaired assets are written down to estimated fair value based on the best information available. Estimated fair value is generally based on either appraised value or measured by discounting estimated future cash flows. Considerable management judgment is necessary to estimate discounted future cash flows. Accordingly, actual results could vary significantly from such estimates. The Company did not recognize any impairment losses as of December 31, 2021, or December 31, 2020. Fair Value of Financial Instruments The Company had no financial instruments for the year ending December 31, 2021, or for the year ending December 31, 2020. ASC 820 “Fair Value Measurements and Disclosures” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) a reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which give the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below: Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means; and Level 3 – Fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2021, and December 31, 2020. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. Revenue Recognition On January 1, 2018, the Company adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, (“ASC 606”). As the Company has no sales, the adoption did not require an adjustment to opening retained earnings for the cumulative effect adjustment and did not affect the 49 Company’s previously reported results of operations, nor its ongoing consolidated and combined balance sheets, statements of cash flow, or statements of changes in equity. Under ASC 606, oil and natural gas sales revenues are recognized when control of the product is transferred to the customer, the performance obligations under the terms of the contracts with customers are satisfied and collectability is reasonably assured. Once operational, all the Company’s oil and natural gas sales will be made under contracts with customers. The performance obligations for the Company’s contracts with customers will be satisfied at a point in time through the delivery of oil and natural gas to its customers. Accordingly, the Company’s contracts will not give rise to contract assets or liabilities. The Company will typically receive payment within 30 days of the month of delivery. The Company’s contracts for oil and natural gas sales will be standard industry contracts that include variable consideration based on the monthly index price and adjustments that may include counterparty-specific provisions related to volumes, price differentials, discounts, and other adjustments and deductions. Stock-Based Compensation The Company accounts for Stock-Based Compensation under ASC 718 “Compensation – Stock Compensation”, which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. Generally accepted accounting principles require measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized. The Company issues stock to consultants for various services. The costs for these transactions are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of the common stock is measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty's performance is complete. The Company recognized consulting expense and a corresponding increase to additional paid-in-capital related to stock issued for services. Income Taxes Income taxes are accounted for under the liability method of accounting for income taxes. Under the liability method, future tax liabilities and assets are recognized for the estimated future tax consequences attributable to differences between the amounts reported in the financial statement carrying amounts of assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantially enacted income tax rates expected to apply when the asset is realized, or the liability settled. The effect of a change in income tax rates on future income tax liabilities and assets is recognized in income in the period that the change occurs. Future income tax assets are recognized to the extent that they are considered more likely than not to be realized. The FASB has issued ASC 740 “Income Taxes”. ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This standard requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based on the 50 technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements. Because of the implementation of this standard, the Company performed a review of its material tax positions in accordance with recognition and measurement standards established by ASC 740 and concluded that it had no uncertain tax positions as of December 31, 2021, or as of December 31, 2020. Basic and Diluted Income per Share The Company computes income per share in accordance with ASC 260, "Earnings per Share", which requires the presentation of both basic and diluted earnings per share (“EPS”) on the face of the statement of operations. Basic EPS is computed by dividing income available to common stockholders by the weighted average number of shares outstanding during the period. Diluted EPS gives effect to all dilutive potential shares of common stock 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 all dilutive potential shares if their effect is anti-dilutive. The Company did not have any dilutive securities as of December 31, 2021, and December 31, 2020. NOTE 4 – RECENT ACCOUNTING PRONOUNCEMENTS Management does not believe any recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the Company’s present or future financial statements. NOTE 5 – ACQUISITION On November 17, 2020, the Company completed the acquisition of Barrister Energy, LLC and the oil and gas properties of Barrister Energy, LLC, (the “Acquisition”). The acquired properties consist of 700 gross acres and include a 95% average working interest and a 79% average net revenue interest. The Acquisition was recognized as an asset acquisition whereby CoJax recorded the assets acquired and the liabilities assumed at the historical cost to Barrister as of November 17, 2020. Revenues and related expenses for the Acquisition are included in our consolidated statement of operations beginning June 16, 2020, which is the date the Company obtained control of the properties. The $2.7 million, zero interest, long-term note was payable to Central Operating, LLC at the signing of the Purchase and Sale Agreement on June 16, 2020. The note payable was settled through a debt exchange agreement on November 19, 2021, with the issuance of 1,350,000 shares of common stock. The Acquisition payable was settled at the closing on November 17, 2020, through the issuance of 3,650,000 shares of common stock. The Company incurred $620,500 in non-capitalizable acquisition-related costs, which were recognized in general and administrative expense during the year ended December 31, 2020. The following table summarizes the historical costs of the assets acquired and the liabilities assumed: Historical Cost of consideration given; Assets acquired: Barrister property rights $ 2,700,000 51 ARO asset 79,802 Liabilities assumed: Asset retirement obligations (79,802) Total Identifiable Net Assets $ 2,700,000 NOTE 6 – LONG-LIVED ASSETS At December 31, 2021, and December 31, 2020, through the Company’s acquisition of Barrister Energy, LLC had leased oil and gas properties assets valued at $2,700,000. NOTE 7 – ACCRUED EXPENSES At December 31, 2021, and December 31, 2020, the Company had the following accrued expenses: December 31, 2021 December 31, 2020 Accrued interest $ - $ 2,410 Accrued salaries and payroll taxes 696,453 611,714 Accrued M&A expenses - 620,500 Accrued expenses $ 696,453 $ 1,234,524 NOTE 8 – NOTES PAYABLE December 31 , December 31, 2021 2020 On May 7, 2020, the Company applied for a Small Business Association (SBA) loan under the Paycheck Protection Program (PPP). The Company met all the necessary qualifications to apply for a $49,992 loan. On June 10, 2020, the SBA PPP loan was approved and transferred to the Company to be used for payment of accrued payroll and related payroll taxes. On November 29, 2021, the Company was notified that the request for forgiveness was denied. The note has been converted to a five-year loan at 1% interest beginning on January 1, 2022. $ 49,992 $ 49,992 On May 4, 2021, the Company applied for a Small Business Association (SBA) loan under the Paycheck Protection Program (PPP). The Company met all the necessary qualifications to apply for a $41,665 loan. On May 9, 2021, the SBA PPP loan was approved and transferred to the Company to be used for payment of accrued payroll and related payroll taxes. We do not expect to be required to repay any portion of the loan. 100% of the funds were disbursed for salaries and payroll taxes in 2021. $ 41,665 $ - The $2.7 million long-term note is payable to Central Operating, LLC at the signing of the Barrister Purchase and Sale Agreement on June 16, 2020. The Company’s obligation to repay the full amount of the note was discharged pursuant to a debt exchange transaction on November 19, 2021, in exchange for the issuance of common stock. $ - $ 2,700,000 Notes payable $ 91,657 $ 2,749, 992 Less: current Portion (51,663) - Notes payable net of current portion $ 39 , 994 $ 2,749, 992 52 Related Party The Company was a party to several loans with related parties. The note holder is the CEO and Executive Chairman of the Company. At December 31, 2021, and December 31, 2020, notes payable consisted of the following: December 31 , December 31, 2021 2020 On September 1, 2019, the Company's Executive Chairman loaned $42,000 to the Company, and the Company issued a promissory note for such amount. The promissory note is unsecured and bears interest at 2% per annum principal and accrued interest matures on February 19, 2022. This note and associated interest was settled with the issuance of common stock in a debt exchange on December 17, 2021. $ - $ 42,000 On November 15, 2019, the Company's Executive Chairman loaned $20,000 to the Company, and the Company issued a promissory note for such amount. The promissory note is unsecured and bears interest at 2% per annum principal and accrued interest matures on February 19, 2022. This note and associated interest was settled with the issuance of common stock in a debt exchange on December 17, 2021. $ - $ 20,000 On February 19, 2020, the Company's Executive Chairman loaned $28,400 to the Company, and the Company issued a promissory note for such amount. The promissory note is unsecured and bears interest at 2% per annum principal and accrued interest matures on February 19, 2022. This note and associated interest was settled with the issuance of common stock in a debt exchange on December 17, 2021. $ - $ 28,400 On July 15, 2020, the Company's Executive Chairman loaned $37,215 to the Company, and the Company issued a promissory note for such amount. The promissory note is unsecured and bears interest at 2% per annum principal and accrued interest matures on July 15, 2022. This note and associated interest was settled with the issuance of common stock in a debt exchange on December 17, 2021. $ - $ 37,215 Notes payable – related party $ - $ 127 , 615 NOTE 9 – RELATED PARTY TRANSACTIONS For the year ending December 31, 2021, there were no related party transactions (see NOTE 8) between the Company’s Executive Chairman and the Company. There were no other related party transactions between any of the Company’s directors or executive officers or any person nominated or chosen by the Company to become a director or executive officer. On January 4, 2021, the Company issued 20,000 shares of Series A convertible preferred stock to Jeffrey J. Guzy, the CEO, and 10,000 shares of Series A convertible stock to Wm. Barrett Wellman, the CFO. Each share is convertible at the option of the holder to ten (10) shares of common stock. Since these shares were not issued until 2021 the fair value of $600,000 ($20 per share) has been recorded as part of accrued salaries and payroll taxes. The fair value was based on the value assigned to common stock ($2 per share) multiplied by 10. 53 For the year ending December 31, 2020, there were four related party transactions (see NOTE 8) between the Company’s Executive Chairman and the Company. There were no other related party transactions between any of the Company’s directors or executive officers or any person nominated or chosen by the Company to become a director or executive officer. NOTE 10 – STOCKHOLDER’S DEFICIT Authorized Capital As of December 31, 2021, the Company has 300,000,000 authorized shares of Common Stock at $0.01 par value and 50,000,000 authorized shares of Preferred Stock at a par value of $0.10, and Series A convertible shares at a par value of $0.01. Preferred Stock During the year ending December 31, 2021, the Company issued 30,000 shares of Series A convertible preferred stock of its officers (see NOTE 9). During the year ending December 31, 2020, the Company issued no shares of Preferred Stock. Common Stock During the year ending December 31, 2021, the Company issued 1,350,000 at $2.00 per share in a debt exchange, and on November 17, 2020, the Company issued 3,650,000 shares as part of the Barrister acquisition. As mentioned in NOTE 5 the acquisition was accounted for as an asset acquisition and the transfer of assets and liabilities occurs at historical cost which resulted in no value being allocated to the shares being issued. Additionally, the Company issued 677,836 shares for vendor payments, 10,000 shares for stock-based compensation, and 66,240 shares for related party note payable debt exchange, all at $2.00 per share. The above shares of capital stock are restricted securities under Rule 144 and were issued in reliance on an exemption from the registration requirements of the Securities Act. During the year ended December 31, 2021, the Company issued 17,500 shares at a share price of $2.00 for cash proceeds, and during the year ending December 31, 2020, the Company issued 9,000 shares at a share price of $2.00 for cash proceeds. During the years ending December 31, 2021, and December 31, 2020, the Company did not repurchase any shares. Capital Contributions During the years ending December 31, 2021, and December 31, 2020, the Company did not receive any capital contributions. NOTE 11 – PROVISION FOR INCOME TAXES The Company provides for income taxes using the liability method in accordance with FASB ASC Topic 740 “Income Taxes”. Deferred income taxes arise from the differences in the recognition of income and expenses for tax purposes. There were no deferred tax assets or liabilities at December 31, 2021, and December 31, 2020. 54 Management has reviewed the provisions regarding the assessment of their valuation allowance on deferred tax assets and based on those criteria determined that it would not have sufficient taxable income to realize those assets. Therefore, management has assessed the realization of the deferred tax assets and has determined that it is more likely than not that they will not be realized and has provided a full valuation allowance against the deferred tax asset. The Company recognizes the financial statement effect of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company is subject to income taxes in the U.S. federal jurisdiction and the state of Virginia. The tax regulations within each jurisdiction are subject to the interpretation of related tax laws and regulations and require significant judgment to apply. The Company is not presently undergoing any tax audits. As of December 31, 2021, the tax years that remain subject to examination are 2020, 2019, 2018, and 2017 for Federal and 2020, 2019, 2018, and 2017 for the state. The Company will apply the federal and state NOL carry-forward in FY 2021 and later years. Income Taxes On December 22, 2017, the United States Government passed new tax legislation that, among other provisions, will lower the corporate tax rate from 35% to 21%. In addition to applying the new lower corporate tax rate in 2018 and thereafter to any taxable income we may have, the legislation affects the way we can use and carry forward net operating losses previously accumulated and results in a revaluation of deferred tax assets recorded on our balance sheet. Given that the deferred tax assets are offset by a full valuation allowance, these changes have no net effect on the Company’s financial position and net loss. However, when we become profitable, we will receive a reduced benefit from such deferred tax assets. A reconciliation of the income tax provision computed at statutory rates to the reported tax provision is as follows: Year ended December 31, 2021 Year ended December 31, 2020 Federal income tax rate 21.0% 21.0% Loss before income taxes $ 1,490,196 $ 1,363,296 Non-deductible expenses - (600,000) Taxable loss $ 1,490,196 $ 763,296 Expected approximate tax recovery on net loss, before income tax $ 1,490,196 $ 160,292 Changes in valuation allowance (312,941) (160,292) Income tax $ - $ - The component of the Company’s deferred tax asset is as follows: 55 As of December 31, 2021 As of December 31, 2020 Deferred income tax assets: Net operating losses carried forward $ 482,269 $ 169,328 Less: valuation allowance (482,269) (169,328) Deferred income tax assets $ - $ - The Company has a valuation allowance against the full amount of its net deferred tax assets due to the uncertainty of the realization of the deferred tax assets. At December 31, 2021, and December 31, 2020, the Company has incurred accumulated net operating losses in the United States of America totaling $2,896,524 and $1,406,328 respectively which are available to reduce taxable income in future taxation years. NOTE 12 - COMMITMENTS AND CONTINGENCIES Operating Lease Commitments The Company has no lease obligations at December 31, 2021, and December 31, 2020. The Company has a month-to-month rental agreement for an office share in Arlington, Virginia beginning on April 1, 2018, for $50 per month. Additionally, the Company has no known contingencies as of December 31, 2021, and December 31, 2020. Purchase Commitments The Company has no purchase obligations at December 31, 2021. Significant Risks and Uncertainties Concentration of Credit Risk – Cash – The Company maintains cash and cash equivalent balances at a single financial institution that are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. At December 31, 2021, and December 31, 2020, the Company had no exposure in excess of insurance. Concentration of Credit Risk – Accounts Receivable – The Company had no revenue-generating operations and therefore no accounts receivable as of the date of these financial statements. Legal Matters During the course of business, litigation commonly occurs. From time to time, the Company may be a party to litigation matters involving claims against the Company. The Company operates in a highly regulated industry and employs personnel, which may inherently lend itself to legal matters. Management is aware that litigation has associated costs and that results of adverse litigation verdicts could have a material effect on the Company's financial position or results of operations. There are no known legal proceedings against the Company or its officers and directors in their capacity as officers and directors of the Company. COVID-19 56 On January 30, 2020, the World Health Organization declared the coronavirus outbreak a "Public Health Emergency of International Concern" and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, quarantines in certain areas, and forced closures for certain types of public places and businesses. The coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse effect on the economies and financial markets of many countries, including the geographical area in which the Company operates. While it is unknown how long these conditions will last and what the complete financial effect will be to the company, to date, the Company is not expecting to experience any adverse effects other than: 1. Difficulty in communicating with potential acquisition targets. 2. Fund-raising events may be limited. Additionally, it is possible that estimates made in the financial statements have been, or will be, materially and adversely affected in the near term as a result of these conditions, including the ability to raise additional funding. NOTE 13 – ASSET RETIREMENT OBLIGATION The Company provides for the obligation to plug and abandon oil and gas wells at the dates properties are either acquired or the wells are drilled. The asset retirement obligation is adjusted each quarter for any liabilities incurred or settled during the period, accretion expense, and any revisions made to the estimated cash flows. The asset retirement obligation incurred at the time of drilling was computed using the annual credit-adjusted risk-free discount rate at the applicable dates. Changes in the asset retirement obligation were as follows: Balance, November 17, 2020 $ - Liabilities acquired 79,802 Liabilities incurred - Liabilities settled - Accretion expense 2,347 Balance, December 31, 2020 $ 82,149 Liabilities acquired - Liabilities incurred - Liabilities settled - Accretion expense 2,416 Balance, December 31, 2021 $ 84,566 NOTE 14 - SUBSEQUENT EVENTS The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued to determine if they must be reported. The management of the Company determined that there were no reportable subsequent events to be disclosed beyond the following: 57 On January 13, 2022, the Company's Executive Chairman loaned $10,000 to the Company, and the Company issued a promissory note for such an amount. The promissory note is unsecured and bears interest at 2% per annum principal and accrued interest matures on December 31, 2022. On January 24, 2022, the Company's Executive Chairman loaned $10,000 to the Company, and the Company issued a promissory note for such an amount. The promissory note is unsecured and bears interest at 2% per annum principal and accrued interest matures on December 31, 2022. On April 21, 2022, the Company's Executive Chairman loaned $18,000 to the Company, and the Company issued a promissory note for such an amount. The promissory note is unsecured and bears interest at 2% per annum principal and accrued interest matures on December 31, 2022. Issuance of Preferred Stock On January 4, 2022, the Company issued 12,500 shares of its Series A convertible preferred stock to Jeffrey J. Guzy, the CEO, and 12,500 shares of Series A convertible stock to Wm. Barrett Wellman, the CFO. Each share is convertible at the option of the holder to ten (10) shares of common stock. Since these shares were not issued until 2022 the fair value of $500,000 ($20 per share) has been recorded as part of accrued salaries and payroll taxes. The fair value was based on the value assigned to common stock ($2 per share) multiplied by 10. Issuance of Common Stock On February 1, 2022, the Company issued 170,000 shares for consulting fees at $2.00 per share. On March 14, 2022, the Company issued 10,000 shares for payment to William A. Bradley, Board member at $2.00 per share. On May 5, 2022, the Company issued 31,554 shares for vendor payments at $2.00 per share. Appointment of Independent Board Member On March 7, 2022, William A. Bradley was offered and accepted the position of an independent member of the Board of Directors. Mr. Bradley, 56, has over fifteen years of leadership, business consulting, financial, and management experience for publicly traded and private companies. Since June 2011, Mr. Bradley served as M&A/Business Consulting Managing Director and Chief Financial Officer at Global Advisors Inc. where he provided business consulting services, reviewed client’s financial position and managed relationships, conducted financial reviews, including the PCAOB or IFRS audit process, and provided his consulting business advice on restructuring and potential mergers and acquisitions. Since September 2018 he has served as the Chairman of the Board of Magagram Social Media Inc., a Toronto-based private company, from December 2006 to June 2011 as Chief Executive Officer of Ocean to Ocean Inc., and from January 2002 until November 2006, as Vice President of Gourmet Foods International. Mr. Bradley graduated from York University in 1998 in Finance and Economics and received his undergraduate degree with honors in 1991 in Business Finance from Sandford College. Oil Price Fluctuations and Uncertainty Our financial results depend on many factors, particularly the price of natural gas and crude oil and our ability to market our production on economically attractive terms. Commodity prices are 58 affected by many factors outside of our control, including changes in market supply and demand, which are affected by weather conditions, pipeline capacity constraints, inventory storage levels, basis differentials, and other factors. As a result, we cannot accurately predict future commodity prices and, therefore, we cannot determine with any degree of certainty what effect increases or decreases in these prices will have on our drilling program, production volumes, or revenues. The recent oscillations in the price of oil will force us to re-evaluate our current acquisition strategy as the price of natural gas and oil fluctuate in the future. We expect oil and natural gas to remain volatile. The ability to find and develop sufficient amounts of natural gas and crude oil reserves at economic costs are critical to the long-term success of the Company. 59 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.