Quarterly report pursuant to Section 13 or 15(d)

Notes and advances payable

v3.3.0.814
Notes and advances payable
9 Months Ended
Sep. 30, 2015
Text Block [Abstract]  
Notes and advances payable

Notes payable consist of the following as of the date indicated:

 

   

December 31,

2014

   

September 30,

2015

 
Officers, directors and affiliates:            
Note payable, interest at 7.5%, due March 2016   $ 150,000     $ 150,000  
Notes payable, interest 7.0%, due January 2017     79,970       67,046  
Notes payable, interest varies (see explanation below)     792,151       792,151  
Collateralized note payable (see below)     120,728       120,728  
    Total officers, directors and affiliates     1,142,849       1,129,924  
Less: Current portion of officers, directors, and affiliates     288,258       288,567  
Long-term portion of officers, directors, and affiliates   $ 854,591     $ 841,357  
Unrelated parties:                
Notes payable, interest at 7.5%, due March 2016   $ 100,000     $ 100,000  
Note payable, interest variable (see below)     549,105       616,105  
Note payable, interest at 7.0%, due August 2016     62,000       62,000  
Notes payable, interest at 7.0%, due January 2017     41,668       34,935  
Notes payable, interest at 7.0%, due August 2015     183,000       183,000  
     Total unrelated parties     935,773       996,040  
Less: Current portion of unrelated parties     872,239       970,400  
Long-term portion of unrelated parties   $ 63,534     $ 25,640  

 

On April 29, 2013, the Company executed a promissory note under which the Company agreed to pay Apex Financial Services Corp, a Colorado corporation, ("Apex") the principal sum of $1,000,000, with interest accruing at an annual rate of 7.5%, with principal and interest due on May 31, 2014. The Company also agreed to assign 75% of its operating income from its oil and gas operations and any lease or well sale or any other assets sales to Apex to secure the debt. Apex is 100% owned by the CEO, director, and shareholder of the Company, Nicholas L. Scheidt. The Company borrowed the full amount of principal on the note, and also paid a loan fee of $10,000. In the event of default on the note and failure to cure the default in ten days, Apex may accelerate payment and the annual interest rate on the note will accrue at 18%. Default includes failure to pay the note when due or if the Company borrows any other monies or offers security in the Company or in the collateral securing the note prior to the note being paid in full. The outstanding principal balance as of September 30, 2015, was $120,728. During March 2015, the Company and Apex entered into an amendment extending the maturity date to March 30, 2016.

 

On January 28, 2014, the Company entered into a line of credit loan agreement for $1,500,000 due January 15, 2015, extended to January 28, 2016. The terms of the note are as follows: 1) the accrued interest is payable monthly starting February 28, 2014, 2) the interest rate is variable based on an index calculated based on a prime rate as published by the Wall Street Journal index (currently 3.25%) plus an add on index with the current and minimum rate of 6.5%., the note has draw provisions, with the first draw of $479,701 4) the note is secured by seven wells and leases owned by the Company, a certificate of deposit for $500,000 at CityWide Bank pledged by a related party, and 5) the personal guarantee of Nicholas Scheidt, Chief Executive Officer. The amount eligible for borrowing on the Credit Facility is limited to the lesser of (i) 65% of the Company's PV10 value of its carbon reserves based upon the most current engineering reserve report or (ii) 48 month cumulative cash flow based upon the most current engineering reserve report.  In addition to the borrowing base limitation, the Company is required to maintain and meet certain affirmative and negative covenants and conditions in order to draw advances on the Credit Facility. The Credit Facility contains certain representations, warranties, and affirmative and negative covenants applicable to the Company, which are customarily applicable to senior secured loan facilities. Key covenants include limitations on indebtedness, restricted payments, creation of liens on oil and gas properties, hedging transactions, mergers and consolidations, sales of assets, use of loan proceeds, change in business, and change in control. The above-referenced promissory notes contain customary default and acceleration provisions and provide for a default interest rate of 21% per annum. In addition, the Credit Facility contains customary events of default, including: (a) failure to pay any obligations when due; (b) failure to comply with certain restrictive covenants; (c) false or misleading representations or warranties; (d) defaults of other indebtedness; (e) specified events of bankruptcy, insolvency or similar proceedings; (f) one or more final, non-appealable judgments in excess of $50,000 that is not covered by insurance; (g) change in control (25% threshold); (h) negative events affecting the Guarantor; and (i) lender in good faith believes itself insecure. In an event of default arising from the specified events, the Credit Facility provides that the commitments thereunder will terminate and the Lender may take such other actions as permitted including, declaring any principal and accrued interest owed on the line of credit to become immediately due and payable. The Credit Facility is secured by a security interest in substantially all of the assets of the Company, pursuant to a Security Agreement, Deed of Trust and Assignment of As-Extracted Collateral entered into between the Company and Citywide Banks. The outstanding principal balance as of September 30, 2015, was $616,105.

 

On January 1, 2014, the company memorialized its short-term liabilities into formal promissory notes. These certain outstanding advances and other notes payable are now included in single promissory notes, all have been reported previously in its financial statements.  Information concerning these promissory notes is set forth in the table below.

Name of Holder   Position   Principal Amount     Interest Rate     Monthly P&I Payment Amount     Number of Monthly Payments  
Donald W. Prosser   Former Director   $ 28,500       7.00 %   $ 564.33       60  
Charles B. Davis   COO & Director   $ 66,500       7.00 %   $ 1,316.78       60  

 

The above-referenced promissory notes contain customary default and acceleration provisions and provide for a default interest rate of 18% per annum. The outstanding principal balances as of September 30, 2015, was $67,046.

 

In addition, the company also issued an unsecured promissory note in the amount of $792,151 on January 1, 2014, to DNR Oil & Gas, Inc. ("DNR").  DNR is a company controlled by the Chief Operating Officer and director, Charles B. Davis.  The DNR note accrues interest at the rate of 2.50% for the calendar years 2014 and 2015, 4.00% for the calendar year 2016, 6.00% for the calendar year 2017 and 8.00% for the remainder of the term of the DNR note.  The DNR note matures on January 1, 2019.  The DNR note requires payments as follows:

 

  One payment of $250,000 in 2016;
  One payment of $250,000 in 2017;

 

  One payment of $250,000 in 2018; and
  The balance of principal and accrued interest on or before January 1, 2019.

 

The DNR note contains customary default and acceleration provisions and provides for a default interest rate of 18% per annum. The note is subordinated to the Bank Line of Credit. The outstanding principal balance as of September 30, 2015 was $792,151.

 

In June 2013, in connection with the conversions of Series A1 Preferred Stock by Burlingame Equity Investors II, LP and Burlingame Equity Investors Master Fund, LP, the Company issued unsecured promissory notes in the original principal amounts of $48,000 and $552,000, respectively, with interest at 7% per annum payable quarterly and all unpaid interest and principal due on July 23, 2014. The Company entered into an extension agreement with the holders of these two existing notes, whereby the Company made a principal payment on the balance in exchange for an extension of the maturity date to January 15, 2015, and entered into another extension agreement further extending the maturity date to January 28, 2016.  Information concerning the principal pay down is set forth in the following table.

 

 

Name of Holder

 

Principal Balance

Before Pay down

    Principal Pay down    

Remaining

Principal Balance

 
Burlingame Equity Investors II, LP   $ 44,000     $ 26,251     $ 17,749  
Burlingame Equity Investors Master Fund, LP     506,000     $ 340,749     $ 165,251  

 

 

On August 15, 2014, the Company executed a Promissory Note to an individual for the redemption of 10 shares of Series A-1 Preferred Stock. The terms of the Promissory Note are as follows: $62,000 with an interest rate of 7% payable in two payments of $31,000 each plus interest, due August 15, 2015, and August 15, 2016, respectively. The Company did not make the August 15, 2015, payment and is currently in default on this note. The Company is negotiating new terms with the note holder.

All of the notes payable shown above are unsecured, except the Apex note. Accrued interest on notes amounted to $3,279 as of December 31, 2014 and $31,377 as of September 30, 2015.