UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended July 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to ________.

Commission file number: 001-41643

TRIO PETROLEUM CORP.

(Exact name of Registrant as specified in its charter)

Delaware		87-1968201
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4115 Blackhawk Plaza Circle, Suite 100 Danville, CA		94506
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (661) 324-3911

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.0001 per share		TPET		NYSE American LLC

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-Accelerated Filer	☒	Smaller Reporting Company	☒
		Emerging Growth Company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of September 11, 2023, there were 29,621,516 shares of the registrant’s common stock outstanding.

TRIO PETROLEUM CORP.

FORM 10-Q

For the Quarter Ended July 31, 2023

		Page

PART I. FINANCIAL INFORMATION		3

ITEM 1.	Financial Statements	3

	Condensed Balance Sheets as of July 31, 2023 (unaudited) and October 31, 2022	3

	Condensed Statements of Operations (unaudited) for the Three and Nine Months Ended July 31, 2023 and 2022	4

	Condensed Statements of Changes in Stockholders’ Equity (unaudited) for the Three and Nine Months Ended July 31, 2023 and 2022	5

	Condensed Statements of Cash Flows (unaudited) for the Nine Months Ended July 31, 2023 and 2022	6

	Notes to Unaudited Condensed Financial Statements	7

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	30

ITEM 4.	Controls and Procedures	30

PART II. OTHER INFORMATION		30

ITEM 1.	Legal Proceedings	30

ITEM 1A.	Risk Factors	30

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

ITEM 3.	Defaults Upon Senior Securities	30

ITEM 4.	Mine Safety Disclosures	30

ITEM 5.	Other Information	30

ITEM 6.	Exhibits	31

SIGNATURES		31

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TRIO PETROLEUM CORP.

CONDENSED BALANCE SHEETS

	July 31,			October 31,
	2023			2022
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,506,028		$	73,648
Prepaid expenses and other receivables		124,290			35,000
Deferred offering costs		-			1,643,881
Total current assets		1,630,318			1,752,529

Oil and gas properties - not subject to amortization		9,045,333			5,836,232
Advance to operators		494,950			1,900,000
Total assets	$	11,170,601		$	9,488,761

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	819,926		$	1,164,055
Asset retirement obligations – current		2,778			2,778
Notes payable - investors, net of discounts		-			4,403,439
Notes payable - related party, net of discounts		-			1,025,497
Warrants liability		-			114,883
Total current liabilities		822,704			6,710,652

Long-term liabilities:
Franchise tax accrual		3,750			9,450
Asset retirement obligations, net of current portion		47,619			45,535
Total Long-term liabilities		51,369			54,985
Total liabilities		874,073			6,765,637

Commitments and Contingencies (Note 7)		-			-

Stockholders’ Equity:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; -0- shares issued and outstanding at July 31, 2023 and October 31, 2022, respectively		-			-

Common stock, $0.0001 par value; 490,000,000 shares authorized; 29,621,516 and 16,972,800 shares issued and outstanding as of July 31, 2023 and October 31, 2022, respectively		2,962			1,697
Stock subscription receivable		(10,010	)		(10,010	)
Additional paid-in capital		19,430,871			6,633,893
Accumulated deficit		(9,127,295	)		(3,902,456	)
Total stockholders’ equity		10,296,528			2,723,124

Total liabilities and stockholders’ equity	$	11,170,601		$	9,488,761

The accompanying notes are an integral part of these unaudited condensed financial statements.

TRIO PETROLEUM CORP.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	2023			2022			2023			2022
	For the Three Months Ended July 31,						For the Nine Months Ended July 31,
	2023			2022			2023			2022

Revenue	$	-		$	-		$	-		$	-

Operating expenses:
Exploration expense	$	199,637		$	2,638		$	225,052		$	28,669
General and administrative expenses		1,171,256			219,524			2,215,775			685,565
Stock-based compensation expense		785,962			-			896,947			-
Accretion expense		695			695			2,084			2,084
Total operating expenses		2,157,550			222,857			3,339,858			716,318

Loss from operations		(2,157,550	)		(222,857	)		(3,339,858	)		(716,318	)

Other expenses:
Interest expense		-			485,293			746,930			1,046,106
Penalty fees		-			-			-			1,322,933
Loss on settlement		13,051			-			13,051			-
Loss on note conversion		-			-			1,125,000			-
Total other expenses		13,051			485,293			1,884,981			2,369,039

Loss before income taxes		(2,170,601	)		(708,150	)		(5,224,839	)		(3,085,357	)
Provision for income taxes		-			-			-			-

Net loss	$	(2,170,601	)	$	(708,150	)	$	(5,224,839	)	$	(3,085,357	)

Basic and Diluted Net Loss per Common Share
Basic	$	(0.08	)	$	(0.05	)	$	(0.25	)	$	(0.21	)
Diluted	$	(0.08	)	$	(0.05	)	$	(0.25	)	$	(0.21	)

Weighted Average Number of Common Shares Outstanding
Basic		26,556,760			15,641,278			20,748,826			14,375,071
Diluted		26,556,760			15,641,278			20,748,826			14,375,071

The accompanying notes are an integral part of these unaudited condensed financial statements.

TRIO PETROLEUM CORP.

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

	Shares		Amount		Receivable			Capital			Deficit			Equity
					Stock			Additional						Total
	Common Stock				Subscription			Paid-in			Accumulated			Stockholders’
	Shares		Amount		Receivable			Capital			Deficit			Equity
Balance at April 30, 2023		24,799,202	$	2,480	$	(10,010	)	$	16,752,597		$	(6,956,694	)	$	9,788,373
Issuance of common stock upon exercise of warrants, net		2,499,466		245		-			1,812,390			-			1,812,635
Issuance of common stock for services		48,000		5		-			80,154			-			80,159
Issuance of restricted stock units under the Equity Incentive Plan		700,000		70		-			(70	)		-			-
Issuance of common stock for warrants that can be exercised per the Resale S-1/A		1,199,848		120		-			(120	)		-			-
Stock-based compensation		425,000		42		-			785,920			-			785,962
Net loss		-		-		-			-			(2,170,601	)		(2,170,601	)
Balance at July 31, 2023		29,621,516	$	2,962	$	(10,010	)	$	19,430,871		$	(9,127,295	)	$	10,296,528

Balance at October 31, 2022		16,972,800	$	1,697	$	(10,010	)	$	6,633,893		$	(3,902,456	)	$	2,723,124
Issuance of common stock for cash, net		400,000		40		-			371,960			-			372,000
Issuance of conversion shares related to the SPA		5,038,902		504		-			5,164,371			-			5,164,875
Issuance of commitment shares related to the SPA		375,000		38		-			1,124,962			-			1,125,000
Issuance of common shares in IPO, net of underwriting discounts and offering costs		2,000,000		200		-			3,342,426			-			3,342,626
Issuance of pre-funded warrants		-		-		-			4,000			-			4,000
Issuance of common stock upon exercise of warrants, net		2,449,466		245		-			1,812,390			-			1,812,635
Issuance of common stock for services, net		48,000		5		-			80,155			-			80,160
Issuance of restricted stock units under the Equity Incentive Plan		700,000		70		-			(70	)		-			-
Issuance of common stock for warrants that can be exercised per the Resale S-1/A		1,199,848		120		-			(120	)		-			-
Stock-based compensation		437,500		43		-			896,904			-			896,947
Net loss		-		-		-			-			(5,224,839	)		(5,224,839	)
Balance at July 31, 2023		29,621,516	$	2,962	$	(10,010	)	$	19,430,871		$	(9,127,295	)	$	10,296,528

Balance at April 30, 2022		15,572,800	$	1,557	$	(10,010	)	$	6,596,514		$	(2,479,271	)	$	4,108,790
Issuance of restricted stock units to outside directors		300,000		30		-			(30	)		-			-
Interest imputed on note payable for acquisition of unproved oil and gas properties		-		-		-			31,317			-			31,317
Net loss		-		-		-			-			(708,150	)		(708,150	)
Balance at July 31, 2022		15,872,800	$	1,587	$	(10,010	)	$	6,627,801		$	(3,187,421	)	$	3,431,957

Balance at October 31, 2021		10,982,800	$	1,098	$	(50,545	)	$	4,202,021		$	(102,064	)	$	4,050,510
Issuance of founders’ shares		80,000		8		535			-			-			543
Issuance of security interest shares to investors		4,500,000		450		-			1,322,483			-			1,322,933
Issuance of common stock for cash, net		10,000		1		40,000			19,999			-			60,000
Issuance of warrants in connection with investor financing		-		-		-			994,091			-			994,091
Issuance of restricted stock units to outside directors		300,000		30		-			(30	)		-			-
Interest imputed on note payable for acquisition of unproved oil and gas properties		-		-		-			89,237			-			89,237
Net loss		-		-		-			-			(3,085,357	)		(3,085,357	)
Balance at July 31, 2022		15,872,800	$	1,587	$	(10,010	)	$	6,627,801		$	(3,187,421	)	$	3,431,957

The accompanying notes are an integral part of these unaudited condensed financial statements.

TRIO PETROLEUM CORP.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	2023			2022
	For the Nine Months Ended July 31,
	2023			2022

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(5,224,839	)	$	(3,085,357	)
Adjustments to reconcile net loss to net cash used in operating activities:
Bad debt expense		25,000			-
Accretion expense		2,084			2,084
Conversion of SPA		1,125,000			-
Amortization of debt discount		432,693			772,318
Write-off of SPA receivable		-			80,000
Imputed interest		-			89,237
Stock-based compensation		896,947			-
Penalty fees		-			1,322,933
Changes in operating assets and liabilities:
Prepaid expenses and other receivables		(114,290	)		(25,206	)
Accounts payable and accrued liabilities		315,045			418,938
Net cash used in operating activities		(2,542,360	)		(425,053	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Other capital expenditures for unproved oil and gas properties		(249,520	)		-
Drilling costs for exploratory well		(2,959,580	)		-
Advances to operators		1,405,050			-
Net cash used in investing activities		(1,804,050	)		-

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net		452,160			60,543
Proceeds from notes payable – investors		-			4,420,000
Repayment of notes payable		(1,472,512	)		(2,920,000	)
Proceeds from issuance of common stock in IPO		6,000,000			-
Cash paid for debt issuance costs		-			(505,000	)
Proceeds from exercise of warrants, net		1,812,635			-
Cash paid for deferred offering costs		(1,013,493	)		(667,843	)
Net cash provided by financing activities		5,778,790			387,700

NET CHANGE IN CASH		1,432,380			(37,353	)
Cash - Beginning of period		73,648			78,877
Cash - End of period	$	1,506,028		$	41,524

Supplemental disclosures of cash flow information:
Cash paid for interest	$	-		$	-
Cash paid for income taxes	$	-		$	-

SUPPLEMENTAL CASH FLOW INFORMATION:
Non-cash investing and financing activities:
Issuance of warrants (equity classified)	$	-		$	994,901
Issuance of RSUs	$	70		$	30
Issuance of common stock for warrants that can be exercised per the Resale S-1/A	$	120		$	-
Issuance of pre-funded warrants	$	4,000		$	-

The accompanying notes are an integral part of these unaudited condensed financial statements.

TRIO PETROLEUM CORP.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2023 AND 2022

NOTE 1 – NATURE OF THE ORGANIZATION AND BUSINESS

Company Organization

Trio Petroleum Corp. (“Trio Petroleum” or the “Company”) was incorporated in the state of Delaware on July 19, 2021. The Company is engaged in the exploration and development of the South Salinas Project (“SSP”), an oil and gas property located in Monterey County, California, which it acquired from Trio Petroleum, LLC (“Trio LLC”). The Company is headquartered in Bakersfield, California, with its principal offices located at 5401 Business Park, Suite 115, Bakersfield, CA, 93309.

Acquisition of South Salinas Project

On September 14, 2021, the Company entered into a Purchase and Sale Agreement (“PSA”) with Trio LLC to acquire an 82.75% working interest in the SSP; the working interest includes the purchased percentage of the SSP’s leases, wells and inventory in exchange for $300,000 cash, a non-interest-bearing note payable of $3,700,000 due to Trio LLC on December 17, 2021 (see Note 6 and Note 8) and 4,900,000 shares of the Company’s $0.0001 par value common stock (see Note 5 and Note 9). At the time of the acquisition, this share issuance constituted 45% of the total number of issued shares of the Company. The Company accounted for the purchase as an asset acquisition, as prescribed in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805 – Business Combinations. The assets and associated asset retirement obligations (“ARO”) were recorded based on relative fair value at the estimated fair value of the consideration paid (see Note 5). In April 2023, the Company purchased an additional 3% working interest in the SSP; see Note 5 for further information. As of July 31, 2023 and October 31, 2022, there were no proved reserves attributable to the approximate 9,300 acres of the property.

Initial Public Offering

The Company’s Registration Statement (Amendment No 9) on Form S-1/A was filed with the SEC on March 24, 2023; its Initial Public Offering was declared effective on April 17, 2023 and closed on April 20, 2023 (collectively, the “Offering” or “IPO”). The Company sold 2,000,000 shares of its common stock for total gross proceeds of $6,000,000, which is described more fully in Note 4.

Emerging Growth Company

The Company is an “emerging growth company,” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and approval of any golden parachute payments not previously approved. Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s condensed financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). Amounts presented in the condensed balance sheet as of October 31, 2022 are derived from our audited financial statements as of that date. The unaudited condensed financial statements as of and for the three and nine month periods ended July 31, 2023 and 2022 have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the interim reporting rules of the Securities and Exchange Commission(“SEC”) and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Registration Statement (Amendment No 9) on Form S-1/A filed with the SEC on March 24, 2023. In the opinion of management, all adjustments, consisting of normal recurring adjustments (unless otherwise indicated), necessary for a fair presentation of the financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

Use of Estimates

The preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity-based transaction and disclosure of contingent assets and liabilities at the date of the financial statements, and the revenue and expenses during the reporting period.

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statement, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Some of the more significant estimates required to be made by management include estimates of oil and natural gas reserves (when and if assigned) and related present value estimates of future net cash flows therefrom, the carrying value of oil and natural gas properties, accounts receivable, bad debt expense, ARO and the valuation of equity-based transactions. Accordingly, actual results could differ significantly from those estimates.

Cash and cash equivalents

The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company had no cash equivalents as of July 31, 2023 and October 31, 2022.

Prepaid Expenses

Prepaid expenses consist primarily of prepaid services which will be expensed as the services are provided within twelve months. As of July 31, 2023 and October 31, 2022, the balances of the prepaids account were $124,290 and $35,000, respectively.

Deferred Offering Costs

Deferred offering costs consist of professional fees, filing, regulatory and other costs incurred through the balance sheet date that are directly related to the planned IPO (see Note 4). As of July 31, 2023 and October 31, 2022, offering costs in the aggregate of $0 and $1,643,881, respectively, were deferred.

Debt Issuance Costs

Costs incurred in connection with the issuance of the Company’s debt have been recorded as a direct reduction against the debt and amortized over the life of the associated debt as a component of interest expense. As of July 31, 2023 and October 31, 2022, the Company recorded no debt issuance costs; as of July 31, 2023 and July 31, 2022, the Company recorded $0 and $126,250 in non-cash interest expense related to debt issuance costs.

Oil and Gas Assets and Exploration Costs – Successful Efforts

The Company is in the exploration stage and has not yet realized any revenues from its operations. It applies the successful efforts method of accounting for crude oil and natural gas properties. Under this method, exploration costs such as exploratory, geological, and geophysical costs, delay rentals and exploratory overhead are expensed as incurred. If an exploratory property provides evidence to justify potential development of reserves, drilling costs associated with the property are initially capitalized, or suspended, pending a determination as to whether a commercially sufficient quantity of proved reserves can be attributed to the area as a result of drilling. At the end of each quarter, management reviews the status of all suspended exploratory property costs considering ongoing exploration activities; in particular, whether the Company is making sufficient progress in its ongoing exploration and appraisal efforts. If management determines that future appraisal drilling or development activities are unlikely to occur, associated exploratory well costs are expensed.

Costs to acquire mineral interests in crude oil and/or natural gas properties, drill and equip exploratory wells that find proved reserves and drill and equip development wells are capitalized. Acquisition costs of unproved leaseholds are assessed for impairment during the holding period and transferred to proven crude oil and/or natural gas properties to the extent associated with successful exploration activities. Significant undeveloped leases are assessed individually for impairment, based on the Company’s current exploration plans, and a valuation allowance is provided if impairment is indicated. Capitalized costs from successful exploration and development activities associated with producing crude oil and/or natural gas leases, along with capitalized costs for support equipment and facilities, are amortized to expense using the unit-of-production method based on proved crude oil and/or natural gas reserves on a field-by-field basis, as estimated by qualified petroleum engineers. As of July 31, 2023 and October 31, 2022, all of the Company’s oil and gas properties were classified as unproved properties and were not subject to depreciation, depletion and amortization.

Unproved oil and natural gas properties

Unproved oil and natural gas properties consist of costs incurred to acquire unproved leases. Unproved lease acquisition costs are capitalized until the lease expires or when the Company specifically identifies a lease that will revert to the lessor, at which time it charges the associated unproved lease acquisition costs to exploration costs.

Unproved oil and natural gas properties are not subject to amortization and are assessed periodically for impairment on a property-by-property basis based on remaining lease terms, drilling results or future plans to develop acreage. All of the Company’s natural gas properties were classified as unproved as of July 31, 2023 and October 31, 2022; see further discussion in Note 5.

Impairment of Other Long-lived Assets

The Company reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. The Company assesses the recoverability of the carrying value of the asset by estimating the future net undiscounted cash flows expected to result from the asset, including eventual disposition. If the future net undiscounted cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and estimated fair value. With regards to oil and gas properties, this assessment applies to proved properties.

As of July 31, 2023 and October 31, 2022, the Company had no impairment of long-lived assets.

Asset Retirement Obligations

ARO consists of future plugging and abandonment expenses on oil and natural gas properties. In connection with the SSP acquisition described above, the Company acquired the plugging and abandonment liabilities associated with six non-producing wells. The fair value of the ARO was recorded as a liability in the period in which the wells were acquired with a corresponding increase in the carrying amount of oil and natural gas properties not subject to impairment. The Company plans to utilize the six wellbores acquired in the SSP acquisition in future exploration activities. The liability is accreted for the change in its present value each period based on the expected dates that the wellbores will be required to be plugged and abandoned. The capitalized cost of ARO is included in oil and gas properties and is a component of oil and gas property costs for purposes of impairment and, if proved reserves are found, such capitalized costs will be depreciated using the units-of-production method. The asset and liability are adjusted for changes resulting from revisions to the timing or the amount of the original estimate when deemed necessary. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized.

Components of the changes in ARO are shown below:

ARO, ending balance – October 31, 2022	$	48,313
Accretion expense		2,084
ARO, ending balance – July 31, 2023		50,397
Less: ARO – current		2,778
ARO, net of current portion – July 31, 2023	$	47,619

Related Parties

Related parties are directly or indirectly related to the Company, through one or more intermediaries and are in control, controlled by, or under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. On September 14, 2021, the Company acquired an 82.75% working interest (which was subsequently increased to an 85.75% working interest as of April 2023) in the SSP from Trio LLC in exchange for cash, a note payable to Trio LLC and the issuance of 4.9 million shares of common stock. As of the date of the acquisition, Trio LLC owned 45% of the outstanding shares of the Company and was considered a related party. As of July 31, 2023 and October 31, 2022, Trio LLC owned less than 1% and 29%, respectively, of the outstanding shares of the Company.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company utilizes ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. The Company accounts for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax rates. A valuation allowance is recorded when it is “more likely than not” that a deferred tax asset will not be realized. At July 31, 2023 and October 31, 2022, the Company’s net deferred tax asset has been fully reserved.

For uncertain tax positions that meet a “more likely than not” threshold, the Company recognizes the benefit of uncertain tax positions in the financial statements. The Company’s practice is to recognize interest and penalties, if any, related to uncertain tax positions in income tax expense in the statements of operations when a determination is made that such expense is likely. The Company is subject to income tax examinations by major taxing authorities since inception.

Fair Value Measurements

The carrying values of financial instruments comprising cash and cash equivalents, payables, and notes payable-related party approximate fair values due to the short-term maturities of these instruments. The notes payable- related party is considered a level 3 measurement. As defined in ASC 820, Fair Value Measurements and Disclosures, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). This fair value measurement framework applies to both initial and subsequent measurement.

Level 1:	Quoted prices are available in active markets for identical assets or liabilities as of the reporting date.

Level 2:	Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies.

Level 3:	Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. The significant unobservable inputs used in the fair value measurement for nonrecurring fair value measurements of long-lived assets include pricing models, discounted cash flow methodologies and similar techniques.

There are no assets or liabilities measured at fair value on a recurring basis. Assets and liabilities accounted for at fair value on a non-recurring basis in accordance with the fair value hierarchy include the initial allocation of the asset acquisition purchase price, including asset retirement obligations, the fair value of oil and natural gas properties and the assessment of impairment.

The fair value measurements and allocation of assets acquired are measured on a nonrecurring basis on the acquisition date using an income valuation technique based on inputs that are not observable in the market and therefore represent Level 3 inputs. Significant inputs used to determine the fair value include estimates of: (i) reserves; (ii) future commodity prices; (iii) operating and development costs; and (iv) a market-based weighted average cost of capital rate. The underlying commodity prices embedded in the Company’s estimated cash flows are the product of a process that begins with NYMEX forward curve pricing, adjusted for estimated location and quality differentials, as well as other factors that the Company’s management believes will impact realizable prices. These inputs require significant judgments and estimates by the Company’s management at the time of the valuation.

The fair value of additions to the asset retirement obligation liabilities is measured using valuation techniques consistent with the income approach, which converts future cash flows to a single discounted amount. Significant inputs to the valuation include: (i) estimated plug and abandonment cost per well for all oil and natural gas wells and for all disposal wells; (ii) estimated remaining life per well; (iii) future inflation factors; and (iv) the Company’s average credit-adjusted risk-free rate. These assumptions represent Level 3 inputs.

If the carrying amount of its proved oil and natural gas properties, which are assessed for impairment under ASC 360 – Property, Plant and Equipment, exceeds the estimated undiscounted future cash flows, the Company will adjust the carrying amount of the oil and natural gas properties to fair value. The fair value of its oil and natural gas properties is determined using valuation techniques consistent with the income and market approach. The factors used to determine fair value are subject to management’s judgment and expertise and include, but are not limited to, recent sales prices of comparable properties, the present value of future cash flows, net of estimated operating and development costs using estimates of proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures, and various discount rates commensurate with the risk and current market conditions associated with the expected cash flow projected. These assumptions represent Level 3 inputs.

Net Loss Per Share

Basic and diluted net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share is computed similar to basic loss per share, except the weighted average number of common shares outstanding are increased to include additional shares from the assumed exercise of share options, warrants and convertible notes, if dilutive.

The following common share equivalents are excluded from the calculation of weighted average common shares outstanding, because their inclusion would have been anti-dilutive (see Note 9):

	As of July 31,			As of July 31,
	2023			2022
Warrants (Note 7, Note 8)		500,000	⁽⁴⁾		7,964,286 ⁽¹⁾
Convertible Notes (Note 7, Note 8)		-			31,857,143 ⁽²⁾
Commitment Shares (Note 7, Note 8)		-			3,826,530 ⁽³⁾
Restricted stock units		-			300,000 ⁽⁵⁾
Total potentially anti-dilutive securities		500,000			43,947,959

⁽¹⁾	Balance includes warrants issued per the Securities Purchase Agreement (“SPA”) with GPL Ventures, LLC (“GPL”), which are exercisable into up to 50% of the number of shares of common stock issued upon full conversion of the Notes, with an exercise price equal to the conversion price.
⁽²⁾	Upon IPO, the debt will convert into a variable number of shares; the number of conversion shares is equal to the outstanding principal amount divided by the conversion price, which is equal to the lesser of a) the IPO price or b) the opening price of the common stock on the first trading day after the IPO multiplied by the discount of 50%.
⁽³⁾	The number of commitment shares to be issued is a variable number of shares for a fixed total dollar amount of $1,125,000, which is 25% of the aggregate Notes principal balance divided by the offering price of the IPO.
⁽⁴⁾	Balance consists of potentially anti-dilutive shares based on 1,459,878 outstanding, equity classified warrants.
⁽⁵⁾	Balance consists of restricted stock units granted to five outside directors.

Environmental Expenditures

The operations of the Company have been, and may in the future be, affected from time to time to varying degree by changes in environmental regulations, including those for future reclamation and site restoration costs. Both the likelihood of new regulations and their overall effect upon the Company vary greatly and are not predictable. The Company’s policy is to meet or, if possible, surpass standards set by relevant legislation by application of technically proven and economically feasible measures.

Environmental expenditures that relate to ongoing environmental and reclamation programs are charged against earnings as incurred or capitalized and amortized depending on their future economic benefits. All of these types of expenditures incurred since inception have been charged against earnings due to the uncertainty of their future recoverability. Estimated future reclamation and site restoration costs, when the ultimate liability is reasonably determinable, are charged against earnings over the estimated remaining life of the related business operation, net of expected recoveries.

Recent Accounting Pronouncements

All recently issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.

Subsequent Events

The Company evaluated all events and transactions that occurred after July 31, 2023 through the date of the filing of this report. See Note 10 for such events and transactions.

NOTE 3 – GOING CONCERN AND MANAGEMENT’S LIQUIDITY PLANS

As of July 31, 2023, the Company had $1,506,028 in its operating bank account and working capital of $807,614. To date, the Company has been funding operations through proceeds from the issuance of common stock, financing through certain investors and its IPO, which closed with net proceeds of $4,940,000. Upon consummation of the IPO, the Company used the net proceeds to i) repay a non-interest-bearing note payable in the amount of $1,032,512, and ii) repay

SEC Form 10-Q filed by Trio Petroleum Corp.