NOTE 7. RELATED PARTY |
6 Months Ended |
|---|---|
Jun. 30, 2016 | |
| Related Party Transactions [Abstract] | |
| Related Party Transactions Disclosure [Text Block] |
NOTE 7. RELATED PARTY
Transactions with related parties and affiliates
Beginning February 1, 2016, the Company sponsored the SUDS 1% Term Overriding Royalty Interest (“ORRI”) offering on behalf of the SUDS field to raise $300,000 to purchase and install pump jacks for twenty two (22) previously drilled wells at the field. Under the terms of the Rockdale offering, investors received 1% of the gross revenue from the field monthly, based on their investment of $20,000 until such time they receive a cumulative revenue amount of $30,000. With each unit purchased, a warrant to purchase 10,000 shares of Company’s common stock was granted with an exercise price of $0.10 per share, and an expiration date of February 28, 2019. At the end of the second quarter, the $300,000 offering had been received which resulted in the granting of warrants to purchase 150,000 shares of common stock. The following affiliated investors each purchased one (1) unit: Joel Oppenheim, Zel C Khan, Lee Lytton, Paul Deputy and Leo Womack. Included in that purchase each accredited investor received 10,000 warrants to purchase an additional 10,000 shares of common stock. The fair value of all these SUDS related warrants (affiliated and non affiliated) was $14,336 and was based on a $0.06 per share valuation, volatility of 235%, a discount rate of 1.09%, over a 3 year term. In addition, to properly account for Rockdale’s 10% working interest owner in the SUDS field, $30,000 of the $300,000 raise was offset against the full cost pool of Property & Equipment.
The pump jacks related to the ORRI offering were to be purchased from Askarii Resources at a market price of $10,000 per unit for a total of $220,000. Equipment sales for the six months ended June 30, 2016 is 198,000 which is $22,000 less than the gross sales. The net revenue of $22,000 represents Rockdale’s working interest that is eliminated in the consolidation process. Rockdale had previously purchased the surplus units as part of the Twin Lakes San Andres Unit (‘TLSAU”) acquisition before transferring them to Askarii at cost. For the six months ended, Askarii booked a profit of $164,670 on the sale of twenty two (22) pump jacks to the other owners of the SUDs properties who are related parties.
On March 11, 2016, the Board of Directors granted Leo B. Womack, the Chairman of the Board of Directors of the Company an option to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $0.06 per share, which vests immediately, and is exercisable for 36 months thereafter. The Board also granted Lee Lytton and Joel Oppenheim, members of the Board of Directors each an option to purchase 500,000 shares of the Company’s common stock at an exercise price of $0.06 per share, which vest immediately, and are exercisable for 36 months thereafter. The fair value of the options granted on March 11, 2016 is $115,045 and was based on a $0.06 valuation, volatility of 235%, a discount rate of 1.09% and a 3 year term. The total amount of the options was expensed in 2016. These warrants are subject to a clawback provision which would be ratably invoked if a director did not complete his 2016 service term.
On May 31, 2016, the Company issued 8 units or 800,000 shares to the current CFO as part of the September 1, 2015 private offering. The shares were issued at a price of $0.06 per share and included warrants to purchase an additional 800,000 shares of common stock at a price of $0.10 cents per share at any time prior to August 5, 2018. This represented the final sale under this offering.
During the six months ended June 30, 2016, shareholders advanced an additional $118,000 while also being paid back $41,000 along with $20,000 being converted as described in Note 5. This resulted in an increase of $17,500 in borrowings through shareholders. This increased the shareholder advance liability from $46,000 at December 31, 2015 to $63,000 at June 30, 2016 which is included under Note payable to affiliates. . In connection with these loans the company granted 50,000 warrants to purchase 50,000 shares of common stock at a price of $0.09. The fair value of these warrants was $3,451, based on a $0.09 price per share valuation, volatility of 284%, a discount rate of 0.87% and a 3 year term was amortized to interest expense as part of debt discount in the six months ended.
On November 4, 2015 the Company executed a Promissory Note for $146,875 related to the TLSAU acquisition. The note was due on December 31, 2015 and accrues at a rate of 10% per annum and the repayment of the note is secured by 1,000,000 shares of restricted stock of the Company. The Company exercised its one time right for a 6 month extension of the maturity date of the note by issuing BSNM 500,000 additional shares of restricted Company stock. On May 2, 2016, this note was converted into 500,000 shares of common stock at a price of $0.075 cents per share at a value of $37,500.
On June 24, 2016, the Company purchased a 2007 Toyota Tundra vehicle for $10,265 from Jovian Petroleum Corporation. It is being used for field operations. During July 2016, payments of $7,000 were made against the outstanding balance. There was no promissory note created for the remaining outstanding balance of $3,264, and both parties agreed for the balance to be paid when funds become available. The truck’s estimated useful life is 5 years.
In association with Mr. Zel C. Khan’s employment agreement dated September 23, 2015, the Company issued one warrant to purchase one share of the Company’s restricted stock at an exercise price of $0.20 per share for each dollar of Mr. Khan’s deferred gross salary for the six months ended 2016. Mr. Khan’s total accrued salary at June 30, 2016 was $80,000. The Company granted warrants to purchase 80,000 shares of common shares for the six months ended 2016. The warrants have a term of 36 months from the June 30, 2016, the date of grant. The fair value of these warrants was $4,210, based on a $0.07 price per share valuation, volatility of 235%, a discount rate of 1.09% and a 3 year term.
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