| Schedule of Outstanding Amounts of Notes Payable |
A
summary of the outstanding amounts of our notes payable as of June 30, 2019 and December 31, 2018 is as follows:
| |
|
June 30, 2019 |
|
|
December 31, 2018 |
|
| 13.5% unsecured note payable due September 8, 2017 (1) |
|
$ |
1,050,000 |
|
|
$ |
1,050,000 |
|
| 0% unsecured note payable due January 2, 2018 (2) |
|
|
250,000 |
|
|
|
250,000 |
|
| 12% unsecured note payable June 30, 2019 (3) |
|
|
120,629 |
|
|
|
120,629 |
|
| 0% unsecured note payable due August 6, 2018 (4) |
|
|
38,000 |
|
|
|
38,000 |
|
| 9% unsecured note payable due December 15, 2018(5) |
|
|
100,000 |
|
|
|
100,000 |
|
| 8% unsecured note payable due October 22, 2018(6) |
|
|
50,000 |
|
|
|
50,000 |
|
| 15% unsecured note payable due February 5, 2020(7) |
|
|
209,525 |
|
|
|
— |
|
| Less: unamortized discount |
|
|
(25,203 |
) |
|
|
(12,932 |
) |
| Total debt |
|
$ |
1,792,951 |
|
|
$ |
1,595,697 |
|
| Less: current maturities |
|
|
1,792,951 |
|
|
|
1,595,697 |
|
| Long-term debt, net of current maturities |
|
$ |
- |
|
|
$ |
- |
|
At
June 30, 2019, the principal amounts due under our debt agreements were all classified as current on our Consolidated Balance
Sheets.
| (1) |
Effective
August 9, 2017, Foothills borrowed $1,050,000 from Profit Well Limited, a Hong Kong limited liability company. The Company
executed a Bridge Note with an annual percentage interest rate of 13.5% and a maturity date of September 8, 2017. Proceeds
of this Bridge Note were primarily used to repay Full Wealth for the debenture dated June 1, 2017. On November 3, 2017, Profit
Well Limited agreed to defer repayment of this note to a later date and acknowledged that the Company is not in default regarding
this Debenture. Profit Well Limited also reaffirmed its belief that the Company will either extend or repay the obligation
to the satisfaction of Profit Well. As partial consideration for the deferment, the Company agreed to issue Profit Well Limited
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, Profit Well 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
Profit Well with 200,000 shares of restricted common stock valued at $46,700. 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 $100,000 shall become due and payable to Profit
Well by the Company. On June 30, 2018, we recorded $100,000 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”). On July 29, 2018, Profit Well Limited 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 Profit Well 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
September 29, 2017, the Company issued to an unaffiliated investor a promissory note and three tranches of warrants for an
aggregate consideration of $250,000. The Note recites that it accrues no interest if paid when due and is due and payable
on January 2, 2018. If principal is not paid on or before maturity, interest will accrue at the rate of 15% per year until
paid. On November 6, 2017, the Company agreed to compensate the investor with 75,000 shares of the Company’s restricted
common stock in connection with a more favorable term of a note entered into with FirstFire Global Opportunities Fund, LLC
(“FirstFire”). On December 30, 2017, the Company and the investor agreed to extend the maturity date of this Note
to January 23, 2018, in return for a payment at maturity of the principal, accrued interest as provided in the Note, plus
30,000 shares of the Company’s restricted common stock. Because the fair value of the shares was greater than 10% of
the present value of the remaining cash flows under the Note, the issuance of the shares in connection with a more favorable
term of a note entered with FirstFire was treated as a debt extinguishment and reissuance of a new debt instrument pursuant
to the guidance of ASC 470-50 “Debt – Modifications and Extinguishments” (“ASC 470-50”). |
Since
January 23, 2018, the Company and the investor have been in ongoing discussions to extend the term of this Note. On March 28,
2018, the investor acknowledged that the Company is not in default regarding this Note and reaffirmed its belief that the Company
will either extend the Note’s due date or repay its obligation on terms that are mutually satisfactory. The warrants have
the following terms:
| ● |
375,000
warrants to purchase 375,000 shares of common stock of the Company at a strike price of $0.665 per share expiring on September
29, 2019; |
| |
|
| ● |
375,000
warrants to purchase 375,000 shares of common stock of the Company at a strike price of $1.25 per share expiring on September
29, 2020; and |
| |
|
| ● |
185,000
warrants to purchase 185,000 shares of common stock of the Company at a strike price of $2.00 per share expiring on September
29, 2020. |
The
aggregate relative fair value of three tranches of warrants was determined to be $105,000 on September 29, 2017, using the Black-Scholes
option-pricing model based on the following assumptions: (i) volatility rate of 94%, (ii) discount rate of 0%, (iii) zero expected
dividend yield, and (iv) expected life of 2-3 years. $2,536 imputed interest was recorded as debt discount. $2,536 was determined
using the present value method based on the following assumptions: (i) adjusted interest rate 4% (ii) expected life of 0.26 year.
The aggregate value of the warrants and imputed interest of $107,536 was considered as debt discount upon issuance and will be
amortized as interest over the term of the Note or in full upon the conversion of the Note. At June 30, 2019, $250,000 of principal
was outstanding under the Note.
Each
tranche of warrants is subject to down round adjustment provisions if the Company during the term of that tranche issues additional
securities for consideration per share, after giving effect to fees, commission and expenses, that is less, or which on conversion
or exercise of the underlying security is less, than $0.665 per share (as adjusted for any change resulting from forward or reverse
splits, stock dividends and similar events).
To
satisfy most favored nation provisions in previously entered securities purchase agreements that are triggered by the transaction
described above, the Company issued 136,015 shares of common stock and warrants to purchase 136,015 shares of common stock, in
the aggregate, to certain investors who purchased units from the Company, at a $1.00 per unit, with each unit consisting of one
share and one warrant. See the Company’s Current Report on the Form 8-K filed with the SEC on June 5, 2017. Of this amount,
100,752 shares and warrants to purchase 100,752 shares of common stock will be issued to Wilshire Energy Partners LLC, an entity
controlled by Kevin J. Sylla, our Executive Chairman and Chief Executive Officer of FPI. The exercise price of these investor
warrants was adjusted to $0.665 per share. We measured the value of the effect of the down round feature as the difference between
the fair value of the financial instrument at an original exercise price of $1.50 and an adjusted exercise price of $0.665 and,
as a result, $59,801 was recorded as down round feature as interest expense under ASC 260-10-30-1. Foothills determined the amount
of $59,801 using the Black-Scholes option-pricing model based on the following assumptions: (i) volatility rate of 94%, (ii) discount
rate of 0%, (iii) zero expected dividend yield, and (iv) expected life of 3 years.
| (3) |
A
promissory note was issued on November 1, 2017, for services rendered, bearing an interest rate of 12% per annum and with
a maturity date of June 30, 2018. On August 22, 2018, the Note Holder 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 agreed to issue the Note Holder 60,000 shares of its restricted common stock. 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”). |
| |
|
| (4) |
On
July 19, 2018, the Company borrowed $38,000 from an unaffiliated investor with an original discount of $3,207. The Note recites
that it accrues no interest if paid when due and is due and payable on August 6, 2018. If principal is not paid on or before
maturity, interest will accrue at the rate of 10% per year until paid. In connection with the issuance of this note, the Company
issued 300,000 shares for late SEC filing, valued at $36,000. $74 imputed interest was recorded as debt discount. $74 was
determined using the present value method based on the following assumptions: (i) adjusted interest rate 4% (ii) expected
life of 0.05 year. The relative aggregate value of the shares and imputed interest was determined to be $32,793 using the
allocation of proceed, $32,793 was considered as debt discount upon issuance and will be amortized as interest over the term
of the Note or in full upon the conversion of the Note. Pursuant to this Note, the investor shall be assigned an undivided
two percent (2%) overriding royalty of all oil, gas, and other minerals and hydrocarbons produced, saved, and sold from each
well now or hereinafter located on certain leases and wells owned by the Company. On August 23, 2018, the lender 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 the lender with 15,000 shares of restricted common
stock valued at $1,950. 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”). At June 30, 2019, $38,000 of principal was outstanding under the Note. |
| |
|
| (5) |
On
September 14, 2018, the Company borrowed $100,000 from an unaffiliated investor, bearing an interest rate of 9% per annum
and with a maturity date of December 15, 2018. In connection with the issuance of this note, the Company issued 250,000 shares
of its common stock, valued at $22,500, which was considered as debt discount upon issuance and will be amortized as interest
over the term of the Note or in full upon the conversion of the Note. At June 30, 2019, $100,000 of principal was outstanding
under the Note. |
| |
|
| (6) |
On
October 22, 2018, the Company issued a term sheet to an unaffiliated investor for a promissory note in the principal amount
of $50,000 with a Volumetric Production Payment (“VPP”) equal to 1,250 barrels of oil equivalent (“BOE”).
The Note has a maturity date of October 22, 2019, with the Principal and accrued unpaid interest due in full at Maturity.
VPP will be made after deduction of 20% royalties due to mineral owners, paid within the term on the Note and at the discretion
of the Company as to amount and volume; provided, however, that the VPP for any month shall not be less than 5% of
the month’s total crude oil sales. Payment may be made “in-kind” at the election of the Investor. If election
is made by Investor to be paid “in-kind,” then Investor shall bear responsibility for paying mineral owner royalties
due on said “in-kind” payments. All VPP’s to be made from the production of the Company’s operating
subsidiaries, Foothills Exploration Operating, Inc. and Tiger Energy Operating, LLC, from the well bores of the Company’s
Duck Creek wells, subject to the terms of the Leases covering such wells. Such VPP will continue until paid in full, regardless
of payment in full of the Note and shall be secured by the assets. In the event that the West Texas Intermediate (WTI) crude
oil market price closes below USD $40.00 per barrel for 10 consecutive trading days, the Investor shall be allocated a revised
VPP equal to 2 times the remaining VPP barrels left over at that time. |
| |
Pursuant
to this Note, the investor shall be assigned an un undivided one-half percent (0.5%)
overriding royalty interest (“ORRI”) in all oil, gas and other minerals produced,
saved, and marketed from each well now or hereinafter located on wells owned by the Company,
subject to the terms of the Leases covering such wells. Upon any default in payment of
principal hereunder, the Company shall pay interest on the principal balance of this
Note then outstanding and on the accrued but unpaid interest from the date of such default
until such default is cured and the Note paid in full at the rate of Fifteen Percent
(15%). The Company agreed to issue the investor 200,000 shares of the Company’s
restricted common stock as additional consideration for entering into the Note with the
Company, valued at $16,000, which was considered as debt discount upon issuance and will
be amortized as interest over the term of the Note or in full upon the conversion of
the Note.
Pursuant
to this Note, Investor has the right to participate in any future offering by the Company for a period of twelve (12)
months for an amount equal to the principal amount detailed in this Term Sheet. So long as the Note is outstanding, if
the Company enters into a subsequent financing with another individual or entity (a third party) on terms that are more
favorable to that third party, the agreements between the Company and the investor shall be amended to include such better
terms. During the six months ended June 30, 2019, the Company amortized $7,935 of such discount to interest expense. At
June 30, 2019, unamortized debt discount was $4,997 and $50,000 of principal was outstanding under the Note.
|
| |
|
| (7) |
On
February 5, 2019, the Company borrowed $209,525 from an unaffiliated investor with an original discount of $33,524. The Note
has a maturity date of February 5, 2020 and bears 10% interest. The Company failed to pay $71,000 principal payment, which
was due on March 15, 2019. As the result, we incurred $100,000 penalty and interest were increased to 15%. As of June 30,
2019, $209,525 of principal was outstanding under the Note. |
|