Annual report pursuant to Section 13 and 15(d)

Subsequent Events

v3.19.1
Subsequent Events
12 Months Ended
Dec. 31, 2018
Subsequent Events [Abstract]  
Subsequent Events

Note 13 – Subsequent Events

 

Acquisition of 22 producing natural gas wells situated on 18,214 acres in Greater Green River Basin, Wyoming

 

Subsequent to the period ended December 31, 2018 and on March 6, 2019, the Company, through its indirect wholly-owned subsidiary, Foothills Exploration, LLC, closed on the acquisition of 22 natural gas wells and approximately 18,214 gross acres (14,584 core), 78% held by production, located in the Greater Green River Basin in Wyoming (the “GRB Assets”). Some of the underlying leases come with certain depth restrictions and roughly 80% of the acreage remains undeveloped. The GRB assets were purchased for approximately $700,000, in an all-cash transaction, which was financed through Company borrowings. The 22 natural gas wells are currently producing approximately 900 Mcf/d and the Company plans to implement a field-wide optimization program over the next 60-90 days designed to increase current production rates.

 

For additional details, please refer to the Company’s current report filed on Form 8-K with the SEC on March 12, 2019.

 

Extension of Debt – 10% senior secured convertible promissory note due September 1, 2019

 

Subsequent to the period ended December 31, 2018 and on March 6, 2019, the Company closed on a loan transaction with FirstFire Global Opportunities Fund, LLC, (“FirstFire”) pursuant to which the Company issued FirstFire a senior secured convertible promissory note (“FirstFire Note”) in the principal amount of $705,882, and received proceeds of $600,000, before giving effect to certain transactional costs. As part of this transaction the Company issued (i) warrants having an 18-month term, to purchase 1,125,000 shares of the Company’s common stock at an exercise price of $0.50 per share, with a cashless exercise feature. The warrants are subject to adjustment in certain events such as forward or reverse stock splits or if subsequent financings during the exercise period of the warrants are at terms that are more favorable to persons in subsequent issuances of securities.

 

The FirstFire Note accrues interest of 10% per annum, and matures on September 1, 2019, which is the date upon which the principal sum, the original issue discount, as well as any accrued and unpaid interest and other fees, shall be due and payable. The Company has agreed to make payments of $20,000 per month pursuant to a cash management agreement as described in the note agreements. The FirstFire Note is collateralized by the GRB Assets described above, which principally are being acquired by the Company with the net proceeds of this Note.

 

For additional details, please refer to the Company’s current report filed on Form 8-K with the SEC on March 12, 2019.

 

Entry into a Material Definitive Agreement  

 

Subsequent to the period ended December 31, 2018 and on March 22, 2019, the Company, through its indirect wholly owned subsidiary, Foothills Exploration, LLC, entered into a letter agreement with an affiliate of American Shale Energy, LLC, to acquire approximately 16,387 net acres located in Wyoming’s Wind River Basin (the “WRB Assets”), which was announced in the Company’s press release issued on March 25, 2019. On March 28, 2019, the Company closed on the acquisition of the WRB Assets for an undisclosed sum and a reservation of overriding royalty interest in the leases, netting the Company with an 82.5% net revenue interest and 100% of the working interest.

 

Final assignment of the leases covered under this letter agreement will be assigned to Foothills Exploration, LLC, the Company’s operating subsidiary in Wyoming. Federal Bureau of Land Management leases, totaling 16,066 net acres, will require the Company to pay annual delay rental payments during the remaining primary term of the leases, if no commercial quantities of hydrocarbons are produced or minimum royalties are not met, totaling approximately $128,584 over the next four years.

 

The fee leases covering approximately 320 net acres will need to be renegotiated with the respective mineral rights owners and if said leases, amounting to less than 2% of the total acquired acreage cannot be renegotiated, then the Company will lose said acreage. Geopinion, Inc., a geological services firm based in Salt Lake City, advised the Company in managing the negotiated sale process and will be paid a finder’s fee consisting of 125,00 shares of the Company’s restricted common stock.

 

For additional details, please refer to the Company’s current report filed on Form 8-K with the SEC on March 29, 2019.

 

Debt – 12% convertible note payable due September 6, 2019

 

Subsequent to the period ended December 31, 2018 and on March 8, 2019, the Company closed on a loan transaction with Labrys Fund, L.P., a Delaware limited partnership, (“Labrys”), pursuant to which, the Company issued a convertible promissory note dated March 6, 2019, in the principal amount of $380,000, with an original issue discount of 10% and received proceeds of $342,000, before giving effect to certain transactional costs including legal fees (the “Labrys Note”). The Company utilized proceeds in part to pay (i) $110,000 to Labrys as partial repayment of a convertible promissory note issued on November 1, 2018 and (ii) $40,000 to the Company’s auditor. As part of this transaction the Company also issued Labrys warrants having a five-year term to purchase 608,000 shares of the Company’s restricted common stock, at an exercise price of $0.50 per share, with a cashless exercise feature. The Labrys Note accrues interest at 12% per year and is due and payable on September 6, 2019. The Company may prepay the Labrys Note without prepayment penalty if prepaid during the first 180 days following issuance date. No prepayment is permitted after the initial 180 days from issuance. The warrants are subject to adjustment in certain events such as forward or reverse stock splits or if subsequent financings are at terms that are more favorable to persons in subsequent issuances of securities.

 

For additional details, please refer to the Company’s current report filed on Form 8-K with the SEC on March 14, 2019.

 

Debt – 10% convertible note payable due December 19, 2019

 

Subsequent to the period ended December 31, 2018 and on March 19, 2019, the Company entered into a securities purchase agreement (the “JSC SPA”) with Jefferson Street Capital, LLC, an unaffiliated investor (“JSC”), pursuant to which the Company issued and sold to JSC a convertible promissory note (the “JSC Note”) in the principal amount of $52,250 (the “JSC Principal”). The foregoing transaction closed on March 28, 2019 and the Company received $47,500 before giving effect to certain transactional costs including legal fees.

 

The JSC Note accrues interest at 10% per year and carries an original issue discount of $4,750. The maturity date for the JSC Note is December 19, 2019, at which time the JSC Principal, and any accrued but unpaid interest, is due and payable. The holder may convert after the 180th calendar day after the issue date of the JSC Note, all or any part of the outstanding and unpaid principal amount and accrued and unpaid interest of the JSC Note due into shares of common stock of the Company at the conversion price that is equal to the lesser of (i) 60% multiplied by the lowest Trading Price (as defined in the note) during the previous twenty-five (25) Trading Days (as defined below) before the Issue Date of this Note (representing a discount rate of 40%) or (ii) 60% multiplied by the Market Price (as defined in the note) (representing a discount rate of 40%).

 

For additional details, please refer to the Company’s current report filed on Form 8-K with the SEC on February 4, 2019.

 

Debt – 12% convertible note payable due March 28, 2020

 

Subsequent to the period ended December 31, 2018 and on March 20, 2019, the Company, entered into Amendment #1 to the Securities Purchase Agreement dated December 6, 2018, with Crown Bridge Partners, LLC, an unaffiliated investor (“Holder”) pursuant to which the Company closed on March 28, 2019 a second tranche under the note, dated December 6, 2017, with a face value of $40,018 (the “Second Tranche”). The Company received $36,500 after giving effect to prorated OID, as defined below, but before certain transaction costs and legal fees. The note carries an original issue discount of $12,000 (the “OID”) to face value prorated to each tranche, to cover the Holder’s transaction related costs incurred in connection with the negotiation, purchase and sale of the note. Each tranche of the note funded accrues interest at a rate of 12% per year. The principal amount of each respective tranche, as well as any accrued and unpaid interest and other fees relating to that respective tranche, is due and payable twelve (12) months from the date on which each respective tranche is delivered to the Company. The Company may not prepay any amount outstanding under each tranche of this Note after the 180th calendar day after the issuance of the respective tranche received pursuant to the Note.

 

For additional details, please refer to the Company’s current report filed on Form 8-K with the SEC on February 4, 2019.

 

Common Stock Issuance

 

  During February 2019, we issued 200,000 shares of common stock to various consultants for services rendered.
     
  During February 2019, a third party debt holder cashless exercised 875,000 shares of warrant to purchase common stocks.
     
  During March 2019, 650,000 shares were returned in connection with partial repayment made to debt holder and the same holder cashless exercised 1,110,000 shares of warrant to purchase common stocks. 

 

Contingent Liabilities – Legal Proceedings

 

633 17th Street Operating Company LLC v. Foothills Exploration, Inc. (Case No. 2019CV30189, District Court, City and County of Denver, Colorado)

 

This case was filed on January 16, 2019, seeking unpaid leasehold obligations in the amount of $75,107 from the Company. The Company is seeking to resolve this claim without further litigation.

 

Graco Fishing & Rental Tools, Inc. vs. Tiger Energy Operating LLC (Case No. 160800005 8th Judicial District Court, Duchesne County, State of Utah)

 

Regarding the Company’s Utah properties, there was a settlement agreement between Graco Fishing & Rental Tools, Inc. (“Graco”) and Tiger Energy Operating, LLC (“TEO”), an indirect subsidiary of the Company and the Operator of the Duck Creek wells. Graco obtained a default judgment of $159,965 against TEO, subsequent to which they were also issued Writs of Execution against the certain TEO wells, located in Uintah and Duchesne County, Utah.

 

Graco had scheduled foreclosure sales of TEO’s interests in four wells (A Rust 2, Dye-Hall 2-21-A1, Wilkins 1-24A5, and Rust 3-22A4), which was to take place on May 3, 2018 (the “Sales”). On April 27, 2018, the parties reached a settlement and release agreement whereby TEO agreed to make five (5) payments totaling $163,965 to Graco. If any of the above payments were not made when due, Graco had the right to immediately execute the Sales. Graco also had the right to maintain and apply liens and notices of its judgment until the total payment has been paid in full by TEO. On June 27, 2018, Finley Resources, Inc. (“Finley”), acquired all of Graco’s right, title and interest in the settlement agreement.

 

The first four settlement payments to the judgment holder were made timely but the last and final payment was made late, and the judgment holder (i.e. Finley) rejected TEO’s final payment. The Company disputes this because the final date of the 10-day cure period was on a Saturday, which is not considered a business day and therefore, the payment was made on the following business day. On January 25, 2019, Finley issued a Writ of Execution Notice and a Notice of Sheriff Sale was filed on February 1, 2019, for the four wells: A Rust 2, Dye-Hall 2-21-A1, Wilkins 1-24A5, and Rust 3-22A4. While it believes it could prevail should it protest Finley’s actions, the Company believes that the production value of the affected properties is limited. For additional details, please review the Legal Proceedings section of this 10-K report.