NOTE 5. RELATED PARTY TRANSACTIONS
|12 Months Ended|
Dec. 31, 2016
|Related Party Transactions [Abstract]|
|Related Party Transactions Disclosure [Text Block]||
NOTE 5. RELATED PARTY TRANSACTIONS
During 2015, shareholder advances of $184,000 were made to the Company ($134,000 in cash, $50,000 in a non-cash part of the Twin Lakes purchase). During 2015, $8,000 of those advances were repaid in cash. The $50,000 non-cash payment resulted from the issuance of 800,000 shares at a price of $0.06 per share. At year end, the balance of $46,000 remained outstanding but was repaid during the first quarter of 2016. See Note 6 for table that reports 2016 balances and activity.
The Company has granted 488,895 restricted shares to David N. Baker, former CEO and Director of the Company, which were not vested on December 31, 2014. After his resignation on February 28, 2015, 400,000 of these shares were voided and returned to the treasury.
Stock based compensation of $33,778 was recorded related to shares issued to David N. Baker, former CEO and Director of the Company, during the three months ended March 31, 2015.
On May 1, 2015, the Company commenced a private offering of its securities under Regulation D to accredited investors and twenty two (22) total units were sold to accredited investors and related parties. Mr. Leo Womack, Chairman of the Company, Mr. Lee Lytton, a Director of the Company and Mr. Joel Oppenheim, a Director of the Company purchased shares to offset advances. See Note 6 for financial related details related to all purchases.
On June 11, 2015, our board of directors agreed to issue Joel Oppenheim 100,000 shares of our restricted common stock at a price of $0.11 per share in consideration for agreeing to serve on our board of directors
On September 1, 2015, the Company commenced a private offering of its securities under Regulation D to accredited investors. Each unit is comprised of 100,000 shares of common stock at a price of $0.06 cents per share and one warrant to purchase an additional 100,000 shares of common stock at a price of $0.10 cents per share at any time prior to August 31, 2018. As of December 31, 2015 twenty seven (27) units had been subscribed for and 2,700,000 shares of common stock had been purchased. Included in the twenty seven units was a purchase of 200,000 shares by Mr. Joel Oppenheim, 200,000 shares by Mr. Lee Lytton, and 800,000 shares by Mr. Zel C. Khan, the CEO of the Company. Mr. Khan’s shares were valued at $48,000 and 800,000 warrants were valued at $21,107 resulting in a loss on conversion of $19,079. . This offering was closed on May 31, 2016.
On September 23, 2015, the Board of Directors granted Leo B. Womack, the Chairman of the Board of Directors of the Company an option to purchase 1 million shares of the Company’s common stock at an exercise price of $0.06 per share, which vests on January 1, 2016, 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 on January 1, 2016, and are exercisable for 36 months thereafter. The fair value of the options granted on September 23, 2015 is $129,216. The total amount of the options was expensed in 2015.
On September 23, 2015, the Company’s Board of Directors agreed to issue Mr. Zel C. Khan, the CEO and President of the Company, 1,000,000 shares of the Company’s restricted common stock in consideration for entering into an employment agreement with the Company. The value of the award on the issuance date was $68,000. In 2015, $8,500 of this award was expensed in 2015. In 2016, $34,000 of this award was expensed. The remaining award amount at 2016 year end is $25,500. The Company will issue one warrant to purchase one share of the Company’s restricted common stock at an exercise price of $0.20 cents per share for each dollar of Mr. Khan’s gross salary that is deferred. The Warrants will have a term of 36 months from date of grant, which will be issued quarterly. During 2015, 40,000 warrants were issued related to the gross salary deferral. During 2016, 160,000 warrants at a fair value of $17,704 were issued related to the gross salary deferral. At December 31, 2016, a cumulative balance of 200,000 warrants had been issued to Mr. Khan’s relating to his gross salary deferral.
The Company acquired a 10% working interest in the SUDS field located in Creek County Oklahoma on September 23, 2015, in exchange for 10,586,805 shares of restricted common stock. Based on the then current market value of our common stock, $0.068 per share, the price paid was $719,903 or $4.77 dollars per barrel of oil (Bbl). Concurrently with the purchase, Jovian agreed to assign to the Company all rights to be the operator of the SUDS unit under a standard operating agreement.
During 2015, a total of 1,600,000 shares were issued through the conversion of debt, along with 1,600,000 warrants with an exercise price of $0.10 per share. These conversions resulted in a total of $130,000 being repaid through the issuance of the equity. The total corresponding loss on conversion of the debt was $109,879, which was primarily resulting from the valuation of the warrants. (See Note 7. EQUITY for the details of these transactions)
On November 4, 2015, the Company acquired a 15% net working interest in the TLSAU field located in Chavez County, New Mexico (the “Net Working Interest”) and all operating equipment on the field. The total purchase price for the acquisition of the Net Working Interest and equipment rights was $196,875. In addition, a $1.3 M face value BSNM note was purchased for $316,800 (6,000,000 shares or .0528 per share).
Beginning February 1, 2016, the Company sponsored the SUDS 1% Term Overriding Royalty Interest (“PORRI”) offering on behalf of the SUDS field to raise $300,000. Under the terms of the Company offering, investors will receive 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 of 2016, 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 in the offering: Joel Oppenheim, Jovian, Lee Lytton, Paul Deputy and Leo Womack, cumulatively receiving 50,000 warrants. The fair value of all 150,000 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. This fair value was accounted for as a loss on the conveyance. 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 Company’s September 2016 acquisition of the 90% working interest), totaling $198,000 for the year ended December 31, 2016. Askarii booked a profit of $164,670 on the sale of pump jacks to the other owners of the SUDs properties.
On February 10, 2016, a shareholder provided an advance of $20,000 in order to temporarily fund the Company’s working capital needs. On April 1, 2016, in order to compensate the shareholder, the Company issued 285,714 shares in consideration for forgiveness of the debt in full. The valuation of the issuance was $20,000, based on 285,714 shares valued at $0.07 per share on April 1, 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 million shares of the Company’s common stock at an exercise price of $0.06 per share, which vests on January 1, 2017, 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 vests on January 1, 2017, and is excisable for 36 months thereafter. The fair value of the options granted on March 11, 2016 is $115,045.
Effective April 18, 2016, Quinten Beasley was compensated for his Board 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 $0.07 per share, which vested 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 claw-back provision which would be ratably invoked if a director did not complete his 2016 service term.
On May 2, 2016, the Company paid off its outstanding Promissory Note to Blue Sky NM (“BSNM”) for $146,875. This Note was created when the 15% working interest in the Twin Lakes field was purchased in November of 2015. The payoff was made by issuing 1,468,750 shares of the Company’s restricted common stock. Based on the market value of the stock on May 2, 2016 of $0.10, the value of the transaction was $146,875 and resulted in no gain or loss. In addition, a cash payment of $4,869 was made to pay off the remaining outstanding interest.
On May 31, 2016, in exchange for a cash payment of $48,000, 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.
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.
On July 13, 2016, the Company issued warrants to purchase 60,000 shares of common stock. The warrants were related loans provided by investors to the purchase a pulling rig. The fair value of all of the warrants was $3,744 at an exercise price of $0.06 per share, expiring on July 13, 2019. The following affiliated investors each received 10,000 warrants related to their loans: Joel Oppenheim - Director, Lee Lytton - Director, Paul Deputy – CFO, Leo Womack – Board Chairman and Quinten Beasley - Director.
On August 18, 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. After 90 days the Board has chosen to issue Mr. Deputy’s one warrant for each dollar of gross salary that is deferred. The exercise price of the warrants is the market price of the Company’s shares at each quarter end. 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.
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 the exercise price at quarter end for each dollar of Mr. Deputy’s deferred gross salary for the year ended 2016. Mr. Deputy’s total accrued salary at December 31, 2016 was $52,520. The Company granted warrants to purchase 46,666 shares of common shares for year ended 2016. The warrants have a term of 36 months from their issuance date. The fair value of all four quarter’s warrants was $7,090, 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 Company issued warrants to purchase 10,000 shares of common stock. The warrants were related to Bridge loans – working capital notes that were not paid timely. The agreement stated that lenders would be paid a 10% warrant coverage. At August 17, 2016, Director Joel Oppenheim was had a balance due of $100,000 and was issued 10,000 warrants. The fair value of these warrants was $1,588 at an exercise price of $0.09 per share, expiring on August 17, 2019.
On August 18, 2016 the Board of Directors issued the CFO 500,000 shares of the Company’s restricted common stock for a signing bonus. 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 18, 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 $23,028 as compensation for arranging and guaranteeing certain bank relationships for the Company.
On August 25, 2016, in consideration for the cancellation of $12,000 of accounts payable, the Company issued 150,000 shares at a valuation of $12,000 priced at $0.08 per share, to Director Quinten Beasley.
On August 25, 2016, in consideration for the cancellation of debts incurred, the Company issued 250,000 shares to Director Joel Oppenheim. These shares had a valuation of $20,000 and were priced at $0.08 per share.
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 $0.08 per share, to the CFO.
During the 2nd and 3rd quarter of 2016, warrants to purchase 230,000 shares of common stock were issued for pre-bridge loans. The loans were provided as follows: $110,000 by Director Joel Oppenheim, $100,000 by the CFO and $20,000 by Chairman Leo Womack. These warrants had a valuation of $15,792 with an exercise price of $0.09 per share and expire in the 2nd and 3rd quarter of 2019.
On September 28, 2016 the Company issued 24,308,985 shares of its restricted common stock to SUDS Properties LLC., a related party, to acquire an additional 40% working interest ownership As a result of the exchange, SUDS became a wholly-owned subsidiary of the Company. The purchase price of the shares equates to a $4,373,186 value, based on the $0.1799 per share market price of Petrolia’s shares on September 28, 2016 (the effective date of the transaction).
On September 28, 2016, the Company acquired an additional 50% working interest ownership from Jovian Resources LLC for $4,000,000 in debt. Specifically, a Promissory Note payable for $1,000,000 as outlined above in Note 4. In addition, a Production Payment Note for $3,000,000 will be paid out net revenues received by the purchaser. See Note 6 for additional details of this transaction. The final purchase price allocation of the combined transactions is as follows: oil and gas properties acquired $8,401,318, asset retirement obligation assumed of $28,132.
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.
The Board authorized the Company to allow all outstanding warrant-holders to exercise their outstanding warrants at a 20% discount. In October 2016, four (4) warrant holders exercised a total of 825,000 warrants by remitting payments of $63,352 at an average share price of $0.095 per shares. Director Lee Lytton exercised 10,000 warrants (included in the total above) by remitting a payment of $472 at a share price of $0.059 per share. Director Joel Oppenheim exercised 300,000 warrants by remitting payment of $18,480 at a share price of $0.06 per share.
On December 31, 2016, the Company issued warrants to purchase 500,000 shares of Company common stock to extend the due date on Rick Wilber’s Notes, based on the Amendment to the Agreement. (See Exhibit 99.2) These warrants were valued at $79,223 and have an exercise price of $0.15 and expire on December 31, 2021.
The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.
Reference 1: http://www.xbrl.org/2003/role/presentationRef