Quarterly report pursuant to Section 13 or 15(d)

Notes Payable - Related Party

v3.10.0.1
Notes Payable - Related Party
9 Months Ended
Sep. 30, 2018
Debt Disclosure [Abstract]  
Notes Payable - Related Party

Note 7 – Notes Payable - Related Party

 

    September 30, 2018     December 31, 2017  
13.25% unsecured note payable due May 5, 2017 (1)   $ 1,250,000     $ 1,250,000  
0% unsecured note payable due September 30, 2018 (2)     6,000,000       6,000,000  
Less: unamortized discount of imputed interest of 4% (2)     -       (114,268 )
Total debt     7,250,000       7,135,732  
Less: current maturities     7,250,000       7,135,732  
Long-term debt, net of current maturities   $ -     $ -  

  

(1) Effective January 5, 2017, Foothills borrowed $1,250,000 from Berwin Trading Limited that, due to its 20% beneficial ownership in the Company, is a related party. This note called for interest at 9% per annum; but because it was not paid when due interest was to have accrued at a default rate of 11% from the due date of the note. The Company used net proceeds of this loan to satisfy certain obligations under a Purchase and Sale Agreement with Total Belief Limited, dated December 30, 2016, for general working capital and to support certain target drilling activities.
   
  On May 4, 2017, the Company and Berwin agreed to extend the maturity date of the debenture to June 20, 2017, in return for an annual interest rate increase from 9% to 13.5% per annum for the life of the debenture. On November 3, 2017, Berwin agreed to defer repayment of this note to a later date and acknowledged that the Company is not in default regarding this Debenture. As partial consideration for the deferment, the Company issued Berwin 100,000 shares of its restricted common stock, valued at $48,000. The issuance of the shares in exchange for the maturity extension was treated as a modification of existing debt pursuant to the guidance of ASC 470-50 “Debt – Modifications and Extinguishments” (“ASC 470-50”). On February 28, 2018, Berwin and the Company agreed to extend the maturity date of the debenture to June 30, 2018, and as consideration for the extension, the Company agreed to compensate Berwin with 250,000 shares of restricted common stock valued at $58,375. The issuance of the shares in exchange for the maturity extension was treated as a modification of existing debt pursuant to the guidance of ASC 470-50 “Debt – Modifications and Extinguishments” (“ASC 470-50”). In addition, the parties agreed that if payment of said principal and interest due and payable is made late, then a penalty payment of $125,000 shall become due and payable to Berwin by the Company. On June 30, 2018, we recorded $125,000 penalty as additional interest payable. The penalty payment was treated as a modification of existing debt pursuant to the guidance of ASC 470-50 “Debt – Modifications and Extinguishments” (“ASC 470-50”). The Company and Berwin are in ongoing discussions to extend the term of this Note and the Company believes it will either extend, rework or repay the obligation to the satisfaction of Berwin. On July 29, 2018, Berwin agreed to defer repayment of this note to a later date and acknowledged that the Company is not in default regarding this Debenture, and as consideration for the extension, the Company agreed to compensate Berwin with 100,000 shares of restricted common stock valued at $12,000. The issuance of the shares in exchange for the maturity extension was treated as a modification of existing debt pursuant to the guidance of ASC 470-50 “Debt – Modifications and Extinguishments” (“ASC 470-50”).
   
(2) On December 30, 2016, in connection with the TBL acquisition, Foothills entered into a promissory note in the amount of $6,000,000. This note bears no interest during its term. The Company calculated and recorded $342,804 of imputed interest as debt discount.

 

During the three months ended September 30, 2018 and 2017, respectively, we incurred $54,534 and $99,668 of interest expense, including amortization of discount of $0 and $57,143 and shares issued for extension of $12,000 and $0, respectively. During the nine months ended September 30, 2018 and 2017, respectively, we incurred $435,859 and $295,306 of interest expense, including amortization of discount of $114,268 and $171,402 and shares issued for extension of $70,375 and $0, and penalty of $125,000 and $0, respectively.