Exhibit 99.1
Trillion Energy International Inc.
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022
(Unaudited - Stated in United States dollars)
TRILLION ENERGY INTERNATIONAL INC.
Index to Condensed Consolidated Interim Financial Statements
TRILLION ENERGY INTERNATIONAL INC.
Condensed Consolidated Interim Statements of Financial Position
(Expressed in U.S. dollars)
| Notes | June 30, 2023 (Unaudited) | December 31, 2022 | ||||||||
| ASSETS | ||||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | $ | $ | ||||||||
| Amounts receivable | 3 | |||||||||
| Prepaid expenses and deposits | 4 | |||||||||
| Total current assets | ||||||||||
| Oil and gas properties, net | 5 | |||||||||
| Property and equipment, net | 6 | |||||||||
| Total assets | $ | $ | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
| Current liabilities: | ||||||||||
| Accounts payable and accrued liabilities | 7,17 | $ | $ | |||||||
| RSU obligation | 16 | |||||||||
| Loans payable | 8 | |||||||||
| Lease liability | 9 | |||||||||
| Total current liabilities | ||||||||||
| Asset retirement obligation | 11 | |||||||||
| Loans payable | 8 | |||||||||
| Convertible debt | 10 | |||||||||
| Lease liability | 9 | |||||||||
| Derivative liability | ||||||||||
| Total liabilities | ||||||||||
| Stockholders’ equity: | ||||||||||
| Share capital | ||||||||||
| Notes and amounts receivable for equity issued | 12,17 | ( | ) | ( | ) | |||||
| Warrant and option reserve | ||||||||||
| Shares to be cancelled | ||||||||||
| Obligation to issue shares | ||||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||
| Total stockholders’ equity | ||||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||||
Nature of operations (Note 1)
Subsequent events (Note 22)
APPROVED BY THE BOARD OF DIRECTORS ON AUGUST 22, 2023:
| “Arthur Halleran” | “David Thompson” | ||
| Director | Director |
See accompanying notes to condensed consolidated interim financial statements.
| 2 |
TRILLION ENERGY INTERNATIONAL INC.
Condensed Consolidated Interim Statements of Income (Loss) and Comprehensive Income (Loss)
(Expressed in U.S. dollars)
(Unaudited)
For the three months ended June 30, | Six months ended June 30, | |||||||||||||||||
| Notes | 2023 | 2022 | 2023 | 2022 | ||||||||||||||
| Revenue | ||||||||||||||||||
| Oil and gas revenue, net | 19 | $ | $ | $ | $ | |||||||||||||
| Cost and expenses | ||||||||||||||||||
| Production | ||||||||||||||||||
| Depletion | 5 | |||||||||||||||||
| Depreciation | 6 | ( | ) | |||||||||||||||
| Accretion of asset retirement obligation | 11 | ( | ) | |||||||||||||||
| Stock-based compensation | 14,16 | |||||||||||||||||
| General and administrative | 18 | |||||||||||||||||
| Geological and geophysical expenses | ||||||||||||||||||
| Total expenses | ||||||||||||||||||
| Income (Loss) before other income (expenses) | ( | ) | ( | ) | ||||||||||||||
| Other income (expense) | ||||||||||||||||||
| Interest income | ||||||||||||||||||
| Finance cost | 8,9,10 | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| Foreign exchange loss | ( | ) | ( | ) | ||||||||||||||
| Gain (loss) on debt settlement | 8,12,16 | ( | ) | ( | ) | |||||||||||||
| Change in fair value of derivative liability | 15 | ( | ) | |||||||||||||||
| Gain (loss) on net monetary position | ||||||||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||||
| Foreign currency translation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Income (Loss) per share – Basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average shares outstanding – Basic and diluted | ||||||||||||||||||
See accompanying notes to condensed consolidated interim financial statements.
| 3 |
TRILLION ENERGY INTERNATIONAL INC.
Condensed Consolidated Interim Statements of Stockholders’ Equity
(Expressed in U.S. dollars)
(Unaudited)
| Shares | Share capital | Warrant and option reserve | Receivables for equity issued | Obligation to issue shares | Shares to be cancelled | Accumulated other comprehensive income (loss) | Accumulated deficit | Total | ||||||||||||||||||||||||||||
Balance, December 31, 2021 (Restated) | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Impact of change in functional currency | - | |||||||||||||||||||||||||||||||||||
| Issuance of common stock | ||||||||||||||||||||||||||||||||||||
| Stock issuance costs | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Stock issued for debt settlement | ( | ) | ||||||||||||||||||||||||||||||||||
| Stock issued for prepaid services | ||||||||||||||||||||||||||||||||||||
| Shares issued for RSUs | ( | ) | ||||||||||||||||||||||||||||||||||
| Warrants exercised | ( | ) | ||||||||||||||||||||||||||||||||||
| Options exercised | ( | ) | ||||||||||||||||||||||||||||||||||
| Finder’s warrants issued | - | ( | ) | |||||||||||||||||||||||||||||||||
| Stock to be issued for services | - | |||||||||||||||||||||||||||||||||||
| Comprehensive loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Warrants exercised | ||||||||||||||||||||||||||||||||||||
| Options exercised | ( | ) | ||||||||||||||||||||||||||||||||||
| Stock issued for RSUs | ||||||||||||||||||||||||||||||||||||
| Stock issued for debt settlement | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation - options | - | |||||||||||||||||||||||||||||||||||
| Stock-based compensation – RSU’s | - | |||||||||||||||||||||||||||||||||||
| RSU’s repurchased | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Convertible debt – Equity component | - | |||||||||||||||||||||||||||||||||||
| Reduction of notes receivables | - | |||||||||||||||||||||||||||||||||||
| Comprehensive income | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
See accompanying notes to condensed consolidated interim financial statements
| 4 |
TRILLION ENERGY INTERNATIONAL INC.
Condensed Consolidated Interim Statements of Cash Flows
(Expressed in U.S. dollars)
(Unaudited)
| Six months ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Operating activities: | ||||||||
| Net income (loss) for the period | $ | $ | ( | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | ||||||||
| Stock to be issued for services | ||||||||
| Stock issued for services | ||||||||
| Depletion | ||||||||
| Depreciation | ||||||||
| Accretion of asset retirement obligation | ||||||||
| Accretion and accrued interest expense | ||||||||
| Interest income | ( | ) | ( | ) | ||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Unrealized foreign exchange (gain) loss | ( | ) | ||||||
| (Gain) loss on debt settlement | ( | ) | ||||||
| Gain on net monetary position | ( | ) | ||||||
| Changes in non-cash working capital items: | ||||||||
| Restricted cash | ||||||||
| Amounts receivable | ( | ) | ||||||
| Prepaid expenses and deposits | ( | ) | ||||||
| Accounts payable and accrued liabilities | ||||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Investing activities: | ||||||||
| Property and equipment expenditures | ( | ) | ( | ) | ||||
| Oil and gas properties expenditures | ( | ) | ||||||
| Changes in non-cash working capital items: | ||||||||
| Amounts receivable | ( | ) | ||||||
| Prepaid expenses and deposits | ( | ) | ||||||
| Accounts payable and accrued liabilities | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities: | ||||||||
| Proceeds from stock subscriptions received, net | ||||||||
| Proceeds from exercise of options | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Proceeds from loans payable | ||||||||
| Repayments of loans payable | ( | ) | ( | ) | ||||
| Repayment of notes receivable | ||||||||
| Proceeds from convertible debt | ||||||||
| Lease payments | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | ||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of year | ||||||||
| Cash and cash equivalents, end of year | $ | $ | ||||||
| 5 |
TRILLION ENERGY INTERNATIONAL INC.
Condensed Consolidated Interim Statements of Cash Flows
(Expressed in U.S. dollars)
(Unaudited)
| Six months ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Supplemental information: | ||||||||
| Taxes paid | $ | $ | ||||||
| Interest paid on credit facilities | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Stock issued for debt settlement | $ | $ | ||||||
| Stock issued for prepaid expenses | $ | $ | ||||||
| Right-of-use asset additions | $ | $ | ||||||
See accompanying notes to condensed consolidated interim financial statements.
| 6 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
1. Organization
Trillion Energy International Inc. and its consolidated subsidiaries, (collectively referred to as the “Company”) is a Canadian based oil and gas exploration and production company. Effective January 2022, the corporate headquarters moved to Suite 700, 838 West Hastings Street, Vancouver, B.C., Canada from Turan Gunes Bulvari, Park Oran Ofis Plaza, 180-y, Daire:54, Kat:14, 06450, Oran, Cankaya, Anakara, Turkey. The Company also has a registered office in Canada and Bulgaria. The Company was incorporated in Delaware in 2015. The Company’s shares trade on the OTCQB under the symbol “TRLEF” and trade on the Canadian Securities Exchange (the “Exchange”) under the symbol “TCF”.
On January 21, 2022, the Company redomiciled from Delaware to a British Columbia corporation by way of an amalgamation transaction with the Company’s British Columbian subsidiary, Trillion Energy Inc. (the “Repatriation Transaction”). Pursuant to the Repatriation Transaction, for every one common stock of Trillion Energy International Inc., the shareholders will receive one common stock of Trillion Energy Inc. The Company will continue to operate and report under the name of Trillion Energy International Inc.
As a result of the Repatriation Transaction, the Company meets the definition of a foreign private issuer, as defined under Rule 3b-4 of the Securities Exchange Act of 1934, as amended.
2. Basis of Presentation
(a) Statement of Compliance
The unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) applicable to the preparation of condensed interim financial statements, including International Accounting Standards (“IAS”) 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (“IASB”), and the Interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). Accordingly, certain disclosures included in annual financial statements have been condensed or omitted and these unaudited condensed interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2022.
The Company’s management makes judgments in its process of applying the Company’s accounting policies in the preparation of its naudited condensed consolidated interim financial statements. In addition, the preparation of the financial data requires that the Company’s management make assumptions and estimates of the effects of uncertain future events on the carrying amounts of the Company’s assets and liabilities at the end of the reporting period and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates as the estimation process is inherently uncertain. Estimates are reviewed on an ongoing basis based on historical experience and other factors that are considered to be relevant under the circumstances. Revisions to estimates and the resulting effects on the carrying amounts of the Company’s assets and liabilities are accounted for prospectively. The critical judgments and estimates applied in the preparation of the Company’s condensed consolidated interim financial statements are consistent with those applied and disclosed in the Company’s consolidated financial statements for the year ended December 31, 2022. In addition, the accounting policies applied in these condensed consolidated interim financial statements are consistent with those applied and disclosed in the Company’s audited financial statements for the year ended December 31, 2022 except for the items below.
| 7 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
2. Basis of Presentation (continued)
Convertible debt
The components of the compound financial instrument (convertible debt) issued by the Company are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement and the definitions of a financial liability and an equity instrument. The conversion option that will be settled by the exchange of a fixed amount in cash for a fixed number of equity instruments of the Company is classified as an equity instrument. At the issue date, the liability component is recognized at fair value, which is estimated using the effective interest rate on the market for similar nonconvertible instruments. Subsequently, the liability component is measured at amortized cost using the effective interest rate until it is extinguished on conversion or maturity.
The value of the conversion option classified as equity is determined at the issue date, by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This amount is recognized in equity, net of tax effects, and is not revised subsequently. When the conversion option is exercised, the equity component of the convertible notes will be transferred to share capital. No profit or gain is recognized to the conversion or expiration of the conversion option.
Change in the basis of reserves
During the six months ended June 30, 2023, the Company determined that the use of proved and probable reserves would be more appropriate and changed its basis of reserves from proved to proved and probable. A change in the basis of reserves constitutes a change in accounting estimate under IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” and the effect of the change is recognised prospectively from the period in which the change has been made.
These condensed consolidated interim financial statements were authorized for issue by the board of directors of the Company (the “Board of Directors”) on August 22, 2023.
(b) Basis of Presentation
These unaudited condensed consolidated interim financial statements have been prepared on a historical cost basis except for certain financial liabilities, warrants and options, which are measured at fair value. These condensed consolidated interim financial statements have been prepared using the accrual basis of accounting, except for cash flow information. These condensed consolidated interim financial statements are presented in US dollars.
(c) Basis of Consolidation
These condensed consolidated interim financial statements include the accounts of the Company and the other entities that the Company controls in accordance with IFRS 10 – Consolidated Financial Statements. Control exists when the Company has power over an entity, when the Company is exposed, or has rights, to variable returns from the entity and when the Company has the ability to affect those returns through its power over the entity. The Company’s subsidiaries are included in the consolidated financial results of the Company from the effective date of acquisition up to the effective date of disposition or loss of control of such entity. Where necessary, adjustments are made to the financial statements of subsidiaries to align their accounting policies with those used by the Company. These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Park Place Energy Corp. (“PPE Corp.”), Park Place Energy Bermuda (“PPE Bermuda”), BG Exploration EOOD (“BG Exploration”), and Park Place Energy Turkey (“PPE Turkey”). All intercompany balances and transactions are eliminated on consolidation.
The Company’s functional currency is the Canadian dollar. The functional currency of BG Exploration is the Bulgarian Lev, the functional currency of PPE Turkey is the Turkish Lira and the functional currency of PPE Corp and PPE Bermuda is the US dollar.
| 8 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
2. Basis of Presentation (continued)
A portion of the Company’s exploration and development activities are conducted jointly with others. The joint interests are accounted for on a proportionate consolidation basis and as a result the condensed consolidated interim financial statements reflect only the Company’s proportionate share of the assets, liabilities, revenues, expenses and cash flows from these activities.
| Name of the joint arrangement | Nature of the relationship with the joint arrangement | Principal place of operation of joint arrangement | Proportion of participating share | |||||
| South Akcakoca Sub-Basin (“SASB”) | Operator | Turkey | % | |||||
| Cendere | Participant | Turkey | % | |||||
(d) Hyperinflation
Due to various qualitative factors and developments with respect to the economic environment in Turkey, including but not limited to, the acceleration of multiple local inflation indices, the three-year cumulative inflation rate of the local Turkish wholesale price index exceeding 100% at the end of February 2022 and the significant devaluation of the Turkish Lira, Turkey has been designated a hyper-inflationary economy as of April 1, 2022 for accounting purposes.
Accordingly, IAS 29, Financial Reporting in Hyper-Inflationary Economies was adopted by the Company in its Financial Statements and applied to these Financial Statements in relation to PPE Turkey which has a Turkish Lira functional currency. The Financial Statements are based on the historical cost approach in IAS 29.
The application of hyperinflation accounting requires restatement of PPE Turkey’s non-monetary assets and liabilities, equity and comprehensive income (loss) items from the original transaction date when they were first recognized into the current purchasing power which reflects a general price index current at the end of the reporting period. To measure the impact of inflation on its financial statements and results, the Company has elected to use the consumer price index (“CPI”) as published by the Turkish Statistical Institute “TURKSTAT”.
As per IAS 29, the condensed consolidated interim financial statements of the Company are presented in US dollars, a stable currency, and the comparative amounts do not require restatement.
(e) Reclassification
Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations or cash flow.
3. Amounts Receivable
| June 30, 2023 | December 31, 2022 | |||||||
| Accounts receivable | $ | $ | ||||||
| GST receivable | ||||||||
| Interest receivable | ||||||||
| Due from related parties | ||||||||
| Cash call receivable from JV partner | ||||||||
| Other | ||||||||
| 9 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
4. Prepaid expenses
| June 30, 2023 | December 31, 2022 | |||||||
| Exploration and production advances | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Prepaid taxes | ||||||||
5. Oil and Gas Properties
| SASB | Cendere | Total | ||||||||||
| Cost | ||||||||||||
| As at December 31, 2021 | $ | $ | $ | |||||||||
| Additions | ||||||||||||
| JV Contribution | ( | ) | ( | ) | ||||||||
| Change in ARO estimate | ( | ) | ( | ) | ( | ) | ||||||
| Currency translation adjustment | ( | ) | ( | ) | ||||||||
| Impact of hyperinflation | ||||||||||||
| As at December 31, 2022 | ||||||||||||
| Additions | ||||||||||||
| JV Contribution | ( | ) | ( | ) | ||||||||
| Change in ARO estimate | ||||||||||||
| Currency translation adjustment | ( | ) | ( | ) | ||||||||
| Impact of hyperinflation | ||||||||||||
| As at June 30, 2023 | $ | $ | $ | |||||||||
| Accumulated depletion | ||||||||||||
| As at December 31, 2021 | $ | $ | $ | |||||||||
| Depletion | ||||||||||||
| Impact of hyperinflation | ( | ) | ( | ) | ( | ) | ||||||
| As at December 31, 2022 | ||||||||||||
| Depletion | ||||||||||||
| Impact of hyperinflation | ( | ) | ( | ) | ( | ) | ||||||
| As at June 30, 2023 | $ | $ | $ | |||||||||
| Net book value | ||||||||||||
| As at December 31, 2022 | $ | $ | $ | |||||||||
| As at June 30, 2023 | $ | $ | $ | |||||||||
Cendere oil field
The
Cendere onshore oil field, which is located in South East Turkey has a total of 25 wells. The Cendere Field was first discovered in 1988.
Oil production commenced during 1990. The operator of the Cendere Field is Türkiye Petrolleri Anonim Ortaklığı
(“TPAO”). The Company’s interest is
| 10 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
5. Oil and Gas Properties (continued)
The South Akcakoca Sub-Basin (“SASB”)
The
Company owns offshore production licenses called the South Akcakoca Sub-Basin (“SASB”). The Company now owns a
Management assesses each field for impairment indicators at each reporting date. As at June 30, 2023, no impairment indicators were identified.
6. Property and Equipment
| Right-of-use
asset | Leasehold improvements | Other Equipment | Motor Vehicles | Furniture | Total | |||||||||||||||||||
| Cost | ||||||||||||||||||||||||
| As at December 31, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Additions | ||||||||||||||||||||||||
| Disposals | ( | ) | ( | ) | ||||||||||||||||||||
| Currency translation adjustment | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Impact of hyperinflation | ||||||||||||||||||||||||
| As at December 31, 2022 | ||||||||||||||||||||||||
| Additions | ||||||||||||||||||||||||
| Currency translation adjustment | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Impact of hyperinflation | ||||||||||||||||||||||||
| As at June 30, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Accumulated depreciation | ||||||||||||||||||||||||
| As at December 31, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Depreciation | ||||||||||||||||||||||||
| Impact of hyperinflation | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| As at December 31, 2022 | ||||||||||||||||||||||||
| Depreciation | ||||||||||||||||||||||||
| As at June 30, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Net Book Value | ||||||||||||||||||||||||
| As at December 31, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| As at June 30, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
7. Accounts Payable and Accrued Liabilities
| June 30, 2023 | December 31, 2022 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Payroll, withholding and sales tax liabilities | ||||||||
| Cash calls received from JV partner | ||||||||
| $ | ||||||||
| 11 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
8. Loans Payable
| As at | June 30, 2023 | December 31, 2022 | ||||||
| Unsecured,
interest-bearing loans at | $ | $ | ||||||
| Unsecured,
interest-bearing loan at | ||||||||
| Unsecured,
interest-bearing loan at TLREF + | ||||||||
| Unsecured,
interest-bearing loan at | ||||||||
| Total loans payable | ||||||||
| Current portion of loans payable | ( | ) | ( | ) | ||||
| Long-term portion of loans payable | $ | $ | ||||||
| (1) | ||
| (2) | ||
| (3) | ||
| (4) | ||
| (5) | On
February 1, 2023, the Company entered into an agreement with to borrow $ |
| 12 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
9. Leases
The Company leases certain assets under lease agreements. During the six months ended June 30, 2023, the Company entered into three new office leases in Turkey, commencing January 1, 2023, February 15, 2023 and March 1, 2023, respectively. The leases all have a -year term.
Lease
liabilities are measured at the commencement date based on the present value of future lease payments. As the Company’s lease did
not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement
date in determining the present value of future payments. The Company used a discount rate of
| Lease liability | June 30, 2023 | December 31, 2022 | ||||||
| Beginning balance | $ | $ | ||||||
| Additions, cost | ||||||||
| Interest expense | ||||||||
| Lease payments | ( | ) | ( | ) | ||||
| Foreign exchange impact | ( | ) | ( | ) | ||||
| Ending balance | $ | $ | ||||||
As at June 30, 2023, the Company’s lease liability is as follows:
| Lease liability | June 30, 2023 | December 31, 2022 | ||||||
| Current portion of operating lease liability | $ | $ | ||||||
| Long-term portion of operating lease liability | ||||||||
| $ | ||||||||
Future minimum lease payments to be paid by the Company as a lessee as of June 30, 2023 are as follows:
| Operating lease commitments and lease liability | ||||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total future minimum lease payments | ||||
| Discount | ( | ) | ||
| Total | $ | |||
During
the six months ended June 30, 2023, $
10. Convertible debentures
On
April 20, 2023, the Company entered into an agreement to issue units of the Company (the “Units”) at a price of CAD$
per unit, for gross proceeds of CAD$. Each Unit will consist of CAD$
| 13 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
10. Convertible debentures (continued)
The
Debentures will mature on
The convertible debentures were determined to be a financial instrument comprising a host debt component, a conversion feature classified as equity, and freestanding warrants classified as equity. The warrants and conversion features were determined to be equity components because the exercise prices are denominated in the functional currency of the Company. Thus, the instrument meets the criterion of an equity instrument.
The
Company paid an underwriting fee of CAD$
On
initial recognition, the proceeds were first allocated to the fair value of the host debt component, calculated using a market interest
rate of
The relative fair value of the warrants and conversion features were determined using the Black-Scholes Option Pricing Model using the assumptions set out as follows:
| April 20, 2023 | ||||
| Risk-free interest rate | % | |||
| Expected volatility | – | % | ||
| Dividend yield | % | |||
| Expected life | ||||
A continuity schedule of the Company’s convertible debt is as follows:
| Balance as at January 1, 2023 | $ | |||
| Issued | ||||
| Transaction costs | ( | ) | ||
| Transaction costs allocated to equity | ||||
| Relative fair value of conversion feature | ( | ) | ||
| Relative fair value of Warrants | ( | ) | ||
| Accretion | ||||
| Interest | ||||
| Impact of foreign currency adjustment | ( | ) | ||
| Balance as at June 30, 2023 | $ | |||
| Current | $ | |||
| Long-term | $ |
| 14 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
11. Asset Retirement Obligations
The following is a continuity of the Company’s asset retirement obligations:
| June 30, 2023 | December 31, 2022 | |||||||
| Beginning balance | $ | $ | ||||||
| Additions | ||||||||
| Accretion expense | ||||||||
| Impact of hyperinflation | ( | ) | ( | ) | ||||
| Change in estimate | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
The
Company’s asset retirement obligations (“ARO”) result from its interest in oil and gas assets including well sites.
The total ARO is estimated based on the Company’s net ownership interest in all sites, estimated costs to reclaim and abandon these
wells and the estimated timing of the costs to be included in future years. The Company estimated the total undiscounted amount required
to settle the ARO as at June 30, 2023 is $
12. Notes and Amounts Receivable for Equity Issued
| June 30, 2023 | December 31, 2022 | |||||||
| Notes receivable | $ | $ | ||||||
| Amounts receivable | ||||||||
| $ | ||||||||
The
notes receivable bear interest at
The amounts receivable are non-interest bearing and due on demand.
The following is a continuity of the Company’s notes and other receivables:
Notes receivable | Amounts receivable | Total | ||||||||||
| Balance, December 31, 2021 | $ | $ | $ | |||||||||
| Additions | ||||||||||||
| Repayments | ( | ) | ( | ) | ( | ) | ||||||
| Write-off | ( | ) | ( | ) | ||||||||
| Balance, December 31, 2022 | ||||||||||||
| Repayments | ( | ) | ( | ) | ( | ) | ||||||
| Settled through RSU repurchase (Note 16) | ( | ) | ||||||||||
| Write-off | ( | ) | ( | ) | ||||||||
| Balance, June 30, 2023 | $ | $ | $ | |||||||||
During
the six months ended June 30, 2023, the interest income totaled $
| 15 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
The Company has an unlimited number of common shares authorized with par value. As at June 30, 2023, common shares were issued and outstanding (December 31, 2022 – ).
For the six months ended June 30, 2023
During
the six months ended June 30, 2023, the Company issued shares with a fair value of $
During the six months ended June 30, 2023, the Company issued shares for RSU’s which were granted and vested in previous periods.
During the six months ended June 30, 2023, warrants with an exercise price of $ CAD (approximately US$) were exercised for gross proceeds of $ CAD (US$).
During the six months ended June 30, 2023, the Company issued shares for the exercise of options as follows:
| ● |
common shares for the exercise of options at $ CAD (approximately US$) for
cash proceeds of $ CAD (US$). As a result, $ | |
| ● |
common shares for the exercise of options at $ CAD (approximately US$) for
cash proceeds of $ CAD (US$). As a result, $ |
During the six months ended June 30, 2023, options with an exercise price of $ $ CAD (approximately US$) were exercised for gross proceeds of $ CAD (US$). As at June 30, 2023, shares had not been issued and an obligation to issue shares of $ (US$) exists.
For the six months ended June 30, 2022
During the six months ended June 30, 2022, the Company issued shares for the exercise of warrants as follows:
| ● |
common shares for the exercise of warrants at $ CAD (approximately US$) for
cash proceeds of $ CAD (US$). As a result, $ |
During the six months ended June 30, 2022, the Company issued shares for the exercise of options as follows:
| ● |
common shares for the exercise of options at $ CAD (approximately US$) for
cash proceeds of $ CAD (US$). As a result, $ |
In
March 2022, the Company issued units at $ CAD per unit for gross proceeds of $ CAD ($ USD) pursuant
to the closing of a non-brokered private placement. Each unit comprises one common share and one half of one share purchase warrant.
Each whole warrant entitles the holder to purchase one common share for $ CAD for two years from the date of the closing of the offering.
As the fair value of the common shares on the same date exceeded the issuance price, no residual value was assigned to the warrants.
Cash finder’s fee of $ CAD ($ USD) were paid and
| 16 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
13. Common Stock (continued)
On June 29, 2022, the Company completed a short form prospectus, issuing units of the Company at a price of $ CAD (approximately US$) per unit for aggregate gross proceeds of up to $ CAD (approximately US$). Each unit consists of one common share of the Company and one half of one common share purchase warrant. Each warrant will be exercisable to purchase one common share of the Company at an exercise price of $ CAD (approximately USD$) until June 29, 2025. A value of $ CAD was allocated to each warrant based on the residual method.
Cash
finder’s fee of $ CAD ($ USD) were paid and finder’s warrants were issued with a fair value of
$
On
March 1, 2022, the Company entered into a consulting agreement with a third party. Pursuant to the consulting agreement, the Company
would issue common shares for the consulting services received in March 2022. As at June 30, 2022, the common shares have not
been issued and the fair value of $
On
March 17, 2022, the Company issued units for investor relations services from February to July 2022 valued at $ CAD ($
USD). During the six months ended June 30, 2022, $ ($ USD) was expensed and included in investor relations on the consolidated
statement of loss and comprehensive loss. As at June 30, 2022, $
On March 17, 2022, the Company issued shares, of which relate to the vesting of restricted stock units granted in 2021 and relating to the granting and vesting of restricted stock units during the period ended June 30, 2022. The value of the restricted stock units granted during the period ended June 30, 2022 is $ CAD ($ USD). $ of the share-based compensation was recorded in the prior year. The share-based compensation for the six months ended June 30, 2022 totaled $.
Under the 2022 Plan, the maximum number of shares of authorized stock that may be delivered is % of the total number of shares of common stock issued and outstanding of the Company as determined on the applicable date of grant of an award under the 2022 Plan. Under the 2022 Plan, the exercise price of each option shall be determined by the Board, subject to any applicable Exchange approval or rules, at the time any option or other stock-based award is granted. In no event shall such exercise price be lower than the exercise price permitted by the Exchange. The vesting schedule for each option or other stock-based award shall be specified by the Board of Directors at the time of grant, subject to any applicable Exchange approval or rules.
| 17 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
14. Stock Options (continued)
Number of options | Weighted
average exercise price | |||||||
| Outstanding, December 31, 2021 | $ | |||||||
| Granted | ||||||||
| Exercised | ( | ) | ||||||
| Expired | ( | ) | ||||||
| Outstanding, December 31, 2022 | $ | |||||||
| Exercised | ( | ) | ||||||
| Outstanding, June 30, 2023 | $ | |||||||
| Exercisable, June 30, 2023 | $ | |||||||
| Outstanding | Exercise Price | Expiry Date | Vested | ||||||||
As at June 30, 2023, the weighted average remaining contractual life of outstanding stock options is years (December 31, 2022 – years).
For
the six months ended June 30, 2023, the Company recognized $ (2022 - $) in stock-based compensation expense for options granted
and vested. At June 30, 2023, the Company has $
No stock options were granted during the six months ended June 30, 2023.
| 18 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
15. Warrants
A continuity of the Company’s outstanding share purchase warrants for the six months ended June 30, 2023 and the year ended December 31, 2022 is presented below:
| Number
of warrants | Weighted average exercise price | |||||||
| Outstanding, December 31, 2021 | $ | |||||||
| Issued | ||||||||
| Exercised | ( | ) | ||||||
| Expired | ( | ) | ||||||
| Outstanding, December 31, 2022 | $ | |||||||
| Issued | ||||||||
| Exercised | ( | ) | ||||||
| Expired | ( | ) | ||||||
| Outstanding, June 30, 2023 | $ | |||||||
| Outstanding | Exercise Price | Expiry Date | |||||
| CAD | |||||||
| CAD | |||||||
| CAD | |||||||
| CAD | |||||||
| CAD | |||||||
| CAD | |||||||
| CAD | |||||||
| CAD | |||||||
| CAD | |||||||
| CAD | |||||||
As at June 30, 2023, the weighted average remaining contractual life of outstanding warrants is years (December 31, 2022 – years).
The Company had previously warrants in connection with private placements, or debt settlements where the exercise price of such warrants was denominated in USD. As such the warrants were classified as derivate liabilities. As at June 30, 2023, the fair value of the warrants were remeasured at $ as all the warrants had expired. The Company recognized a gain on the fair value change of $ (2022 - loss of $) for the six months ended June 30, 2023.
The following is a continuity of the Company’s derivative warrant liability:
| Total | ||||
| Balance, December 31, 2021 | $ | |||
| Effect of change in functional currency | ( | ) | ||
| Exercise of warrants | ( | ) | ||
| Change in fair value of derivative | ||||
| Foreign currency translation | ( | ) | ||
| Balance, December 31, 2022 | $ | |||
| Change in fair value of derivative | ( | ) | ||
| Balance, June 30, 2023 | $ | |||
| 19 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
16. Restricted Stock Units
On January 1, 2023, the Company granted RSU’s which vest quarterly beginning January 1, 2023. On May 11, 2023, the Company granted RSU’s, which vested immediately.
For the six months ended June 30, 2023, the Company recognized $ (2022 - $) in stock-based compensation expense for RSUs granted and vested.
Number of unvested restricted stock units | Weighted average fair value per award | |||||||
| Balance, December 31, 2021 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Balance, December 31, 2022 | ||||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Balance, June 30, 2023 | ||||||||
The Company previously granted certain RSU’s whereby the holder has the right and option to require the Company to withhold up to one third of the RSU shares awarded to pay the cash equivalent of the market price of the shares on the date of vesting. As a result, a portion of the value of the RSU’s is recorded as a RSU obligation liability. As at June 30, 2023, the balance of the RSU obligation was $.
During
the six months ended June 30, 2023, the Company repurchased RSU’s for $, equaling the fair value of the Company’s
shares at the time of repurchase and did not recognize any gain or loss on the transaction. As a result of the transaction, the Company
recognized a reduction to equity of $ and a reduction to the RSU obligation liability of $
As at June 30, 2023, the Company had RSU’s (December 31, 2022 – ) outstanding.
17. Related Party Transactions
At
June 30, 2023, accounts payable and accrued liabilities included $
During
the six months ended June 30, 2023, management fees and salaries of $
During the six months ended June 30, 2022, the Company issued shares to directors for RSU’s which were granted and vested in previous periods.
During
the six months ended June 30, 2023, the Company issued shares with a fair value of $
During the six months ended June 30, 2023, the Company repurchased RSU’s from directors and recognized a reduction to equity of $ on the transaction. $ of the RSU’s repurchased was applied against outstanding notes receivable.
| 20 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
17. Related Party Transactions (continued)
As
at June 30, 2023, notes receivable included $ (December 31, 2022 - $
18. General and Administrative
| For the six months ended | ||||||||
| June 30, 2023 | June 30, 2022 | |||||||
| Salaries and compensation | $ | $ | ||||||
| Professional fees | ||||||||
| Office | ||||||||
| Investor relations | ||||||||
| Filing and transfer fees | ||||||||
| Advertising | ||||||||
| Travel | ||||||||
| Penalties | ||||||||
| Bank charges and other | ||||||||
| $ | $ | |||||||
19. Segmented Information
During the six months ended June 30, 2023 and the year ended December 31, 2022, the Company’s operations were in the resource industry in Turkey with head offices in the United States and a satellite office in Sofia, Bulgaria.
| Canada | Turkey | Bulgaria | Total | |||||||||||||
| Six months ended June 30, 2023 | ||||||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Finance cost | ||||||||||||||||
| Depletion | ||||||||||||||||
| Depreciation | ||||||||||||||||
| Accretion of asset retirement obligation | ||||||||||||||||
| Stock-based compensation | ||||||||||||||||
| Loss on debt extinguishment | ||||||||||||||||
| Gain on net monetary position | ||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||||||
| As at June 30, 2023 | ||||||||||||||||
| Non-current assets | $ | $ | $ | $ | ||||||||||||
| Canada | Turkey | Bulgaria | Total | |||||||||||||
| Six months ended June 30, 2022 | ||||||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Financing cost | ||||||||||||||||
| Depletion | ||||||||||||||||
| Depreciation | ||||||||||||||||
| Accretion of asset retirement obligation | ||||||||||||||||
| Stock-based compensation | ||||||||||||||||
| Gain on debt settlement | ( | ) | ( | ) | ||||||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| As at December 31, 2022 | ||||||||||||||||
| Non-current assets | $ | $ | $ | $ | ||||||||||||
| 21 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
19. Segmented Information continued)
The Company’s breakdown of net revenue by product segment is as follows:
| For the six months ended | ||||||||
| June 30, 2023 | June 30, 2022 | |||||||
| Oil | $ | $ | ||||||
| Gas | ||||||||
| $ | $ | |||||||
The
Company incurs royalties of
20. Capital Management
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern to support its business plan, as well as to ensure that the Company is able to meet its financial obligations as they become due.
The basis for the Company’s capital structure is dependent on the Company’s expected business growth and changes in business environment. To maintain or adjust the capital structure, the Company may issue new shares through private placement, incur debt or return capital to members.
The Company is dependent upon external financings to fund activities. In order to carry future projects and pay administrative costs, the Company will utilize its existing working capital and raise additional funds as needed. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. The Company is not subject to externally imposed capital requirements.
21. Financial Instruments and Risk Management
The Company is exposed, through its operations, to the following financial risks:
| a) | Market risk |
| b) | Credit risk |
| c) | Liquidity risk |
The Company is exposed to risks that arise from its use of financial instruments. This note describes the Company’s objectives, policies, and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these Financial Statements.
There have been no substantive changes in the Company’s exposure to financial instrument risks, its objectives, polices and processes for managing those risks or the methods used to measure them from previous reported periods unless otherwise stated in the note. The overall objective of management is to set policies that seek to reduce risk as far as possible without unduly affecting the Company’s competitiveness and flexibility. Further details regarding these policies are set out below.
| a) | Market risk |
Market risk is the risk of loss that may arise from changes in market factors such as foreign currency exchange, interest rates and equity price risk.
| 22 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
21. Financial Instruments and Risk Management (continued)
Foreign currency risk:
Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. The Company and its subsidiaries are exposed to currency risk as it has transactions denominated in currencies that are different from their functional currencies. The Company does not hedge its exposure to fluctuations in foreign exchange rates.
As at June 30, 2023, the Company’s significant foreign exchange currency exposure on its financial instruments, expressed in USD was as follows:
If
the CAD strengthened or weakened against the USD by
Interest rate risk:
Interest rate risk is the risk that future cash flows will fluctuate because of changes in market interest rates. The interest earned on cash is insignificant and the Company does not rely on interest income to fund its operations. The Company does not have significant debt facilities and is therefore not exposed to interest rate risk.
Other price risk:
Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The Company does not hold equity investments in other entities and therefore is not exposed to a significant risk.
| b) | Credit risk |
Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations.
The Company is subject to credit risk on its cash, amounts receivable which consists primarily of trade receivables and GST receivable and notes and amounts receivable for equity issued. The Company limits its exposure to credit loss on cash by placing its cash with a high-quality financial institution. Exposure to credit loss notes and amounts receivable for equity issued is limited by entering into these types of transactions with related parties and entities that are well known to the Company.
The Company only has two customers. The Company mitigates credit risk by evaluating the creditworthiness of customers prior to conducting business with them and monitoring its exposure for credit losses with existing customers. One of the customers is the largest oil refinery in Turkey. The other customer provides letters of credit to be used by the Company in the event of default. As at March 31, 2023, all of the Company’s trade receivables are current (< 30 days outstanding).
The
Company’s maximum credit exposure is $
| 23 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended June 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
21. Financial Instruments and Risk Management (continued)
| c) | Liquidity risk |
Liquidity risk arises from the Company’s general and capital financing needs. The Company continuously monitors and reviews both actual and forecasted cash flows, and also matches the maturity profile of financial assets and liabilities, when feasible. The Company anticipates increases in revenue in future periods resulting from the completion of an additional well subsequent to the period end. Historically, the Company’s sources of funding has been through equity and debt financings. The Company’s access to financing is uncertain. There can be no assurance of continued access to significant debt or equity funding.
The table below summarizes the maturity profile of the Company’s contractual cashflows.
| As at June 30, 2023 | Less than 1 year | 1 - 2 years | Later than 2 years | Total | ||||||||||||
| Accounts payable and accrued liabilities | $ | $ | $ | $ | ||||||||||||
| Loans payable | ||||||||||||||||
| Lease liability | ||||||||||||||||
| RSU obligation | ||||||||||||||||
| Convertible debt | ||||||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||
| As at December 31, 2022 | Less than 1 year | 1 - 2 years | Later than 2 years | Total | ||||||||||||
| Accounts payable and accrued liabilities | $ | $ | $ | $ | ||||||||||||
| Loans payable | ||||||||||||||||
| Lease liability | ||||||||||||||||
| RSU obligation | ||||||||||||||||
| Derivative liability | ||||||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||
22. Subsequent Events
Subsequent to June 30, 2023, the Company granted RSU’s to the CFO of the Company. The RSU’s vested immediately.
Subsequent to June 30, 2023, the Company issued common shares pursuant to the following:
| ● | common shares relating to the vesting of RSUs; | |
| ● |
common shares to settle outstanding debt of $ | |
| ● | common shares pursuant to the exercise of options with an exercise price of $ $ CAD (approximately US$); | |
| ● | common shares pursuant to the exercise of options with an exercise price of $ CAD (approximately US$); | |
| ● | common shares pursuant to the exercise of options with an exercise price of $ CAD (approximately US$); and | |
| ● | common shares to settle an obligation to issue shares of $ existing at June 30, 2023 relating to the exercise of options. |
| 24 |