NOTE 7. RELATED PARTY |
9 Months Ended |
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Sep. 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. Under the terms of the Company offering, investors received 1% of the gross revenue from the field monthly, based on their investment of $20,000 until such time as 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. The fair value of all these SUDS related warrants was $14,336 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 the Company’s 10% working interest owner in the SUDS field, $30,000 was offset against the full cost pool of Oil & Gas Properties.
The Company through its wholly-owned subsidiary Askarii sold pump jacks to the other owners of the SUDS properties (before the September acquisition), totaling $198,000 for the nine months ended September 30, 2016. For the nine months ended, Askarii booked a profit of $164,670 on the sale of pump jacks to the other owners of the SUDs properties.
To compensate the independent Directors for their service during 2016, 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.
Effective April 18, 2016, Quinten Beasley was compensated for his service during 2016 through a grant of 500,000 warrants to purchase 500,000 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 fair value of the warrants is $41,891 based on a $0.08 valuation, volatility of 235%, a discount rate of 1.09% and a 3 year term. The total amount of the warrants 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, in consideration for the cancellation of debt incurred as a result of a $48,000 advance, the Company issued 8 units or 800,000 shares to the current CFO as part of, and under the terms 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 nine months ended September 30, 2016, shareholders advanced an additional $378,000, while also receiving offsetting cash payments of $122,000 on outstanding advances and converting $150,000 of advances into shares of common stock, as described in Note 5. This resulted in a cumulative increase of $116,000 in borrowings through shareholders. This increased the shareholder advance liability from $46,000 at December 31, 2015 to $162,000 at September 30, 2016 which is included under Note payable to affiliates. . In connection with these loans the Company granted 290,000 warrants to purchase 290,000 shares of common stock at an average exercise price of $0.09 per share. The fair value of these warrants was $19,536, based on an average $0.08 price per share valuation, volatility of 284%, a discount rate of 0.87% and a 3 year term. The value of the warrants was recorded as debt issuance costs on the date of issuance.
On November 4, 2015 the Company executed a Promissory Note for $146,875 to BSNM, related to the TLSAU acquisition. The note was due on December 31, 2015 and accrues at a rate of 10% per annum. 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 common stock on December 31, 2015. On May 2, 2016, this note was converted into 500,000 shares of common stock at a price of $0.075 per share at a value of $37,500.
On June 24, 2016, the Company purchased a 2007 Toyota Tundra vehicle for $10,625 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 nine months ended 2016. Mr. Khan’s total accrued salary at September 30, 2016 was $120,000. The Company granted warrants to purchase 120,000 shares of common shares for the nine months ended 2016 (40,000 warrants per quarter). The warrants have a term of 36 months from their issuance date. The fair value of all three quarter’s warrants was $11,376, based on an average $0.10 price per share valuation, volatility of 235%, a discount rate of 1.09% and a 3 year term. The warrants were recognized as stock compensation expense.
During the nine months ended September 30, 2016, two directors were granted warrants to purchase 31,250 shares of common stock in exchange for providing collateral to a bank to collateralize the Company’s letters of credit. The value of the warrants was $2,629 with an exercise price of each warrant is $0.06 per share and they expire three (3) years from their grant date. The value of these warrants was recorded as debt issuance costs on the date of the grant.
On August 17, 2016 Paul M. Deputy was appointed Chief Financial Officer (“CFO”) of the Company and entered into an employment agreement with the Company effective July 1, 2016 to serve as Chief Financial Officer for an initial term of twelve (12) months (automatically renewable thereafter for additional one year terms). The agreement provides that the Company will pay Mr. Deputy $140,000 per year. The Company granted Mr. Deputy options to purchase 550,000 shares of the Company’s restricted common stock at a value of $26,096 with an exercise price of $0.077 per share with a term of three (3) years beginning July 1, 2016, as a signing bonus. These warrants were recognized as stock compensation expense.
Mr. Deputy’s compensation for the first 90 days of the contract period will be deferred with the Board having the option to, (a) authorize payment at that time or (b) elect to defer payment until the closing of the financing in exchange for granting Mr. Deputy a warrant to purchase Petrolia shares equal to the amount of salary deferred at a price equal to the closing price of the stock on the day of the Board meeting or (c) issue shares of common stock based on a strike price equal to the closing price of the company’s shares on the previous day.
In association with Mr. Deputy’s employment agreement dated July 1, 2016, 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. Deputy’s deferred gross salary for the nine months ended 2016. Mr. Deputy’s total accrued salary at September 30, 2016 was $11,667. The Company granted warrants to purchase 11,666 shares of common shares for the nine months ended 2016. The warrants have a term of 36 months from their issuance date. The fair value of all three quarter’s warrants was $1,533, based on a $0.14 price per share valuation, volatility of 317%, a discount rate of 1.09% and a 3 year term. The warrants were recognized as stock compensation expense.
On August 17, 2016 the Board of Directors issued two key employees (Carla Petty and Jason Bagby) 200,000 shares of the Company’s restricted common stock. The shares were issued at current market price of $0.077 per share on August 17, 2016 at a value of $15,400 and recorded as stock based compensation.
On August 17, 2016 the Board of Directors issued the CFO 500,000 shares of the Company’s restricted common stock for settlement of outstanding payables. The shares were issued at current market price of $0.077 per share on August 17, 2016 at a value of $38,500 and recorded as stock based compensation.
On August 17, 2016 the Board of Directors granted Joel Oppenheim options to purchase 300,000 shares of the Company’s restricted common stock at an exercise price of $0.077 per share and have a term of three (3) years beginning August 17, 2016 at a value of $23,100 as compensation for arranging and guaranteeing certain bank relationships for the Company.
On August 25, 2016, in consideration for the cancellation of $56,107 of accounts payable and $110,000 of debts incurred, the Company issued 2,076,000 shares at a valuation of $166,107 priced at $0.06 per share, to the CFO.
Effective September 30, 2016, the seven (7) Advisory Board members were compensated for their service from April 1, 2016 through September 30, 2016 (for two quarters) though the granting of 12,500 warrants each (87,500 total warrants per quarter), per quarter per Board member, to purchase 12,500 shares of the Company’s common stock at an average exercise price of $0.095 per share, which vests immediately, and is exercisable for 36 months thereafter. The fair value of the warrants is $13,191 based on an average $0.095 valuation, volatility of 235%, a discount rate of 1.09% and a 3 year term. The total amount of the warrants 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.
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