4. RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2013

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

The balance due to related parties as of September 30, 2013 of $676,749 consisted of current and long term notes payable to David Reichman, the Company’s Chief Executive Officer of $470,079 and current and long term notes payable to Kathy Griffin, the Company’s President of $206,670. As of December 31, 2012, the related party balance was $3,853,391, consisting of a balance due David Reichman of $3,304,634, and a balance due Kathy Griffin of $548,757. During the nine month period ended September 30, 2013, Mr. Reichman advanced the company $74,826 and was repaid $120,488.  The amounts due to the officers are due on June 30, 2014 in the amount of $17,795, and $658,991 due on December 31, 2015. The notes bear interest at 5%, monthly installments on the long-term notes in the amount of $4,000 on each note, begins January 1, 2015. Interest on various credit cards of Mr. Reichman, are being accrued at the applicable rates on the credit card accounts. The difference between the new note balances and the old liabilities of $3,108,133 was recorded to additional paid in capital due to the related party nature of the transaction.  

On June 30, 2013, the Company negotiated the previous accrued wages, advances and expenses of David Reichman, CEO and Kathy Griffin, President, into long-term notes and short-term notes. Mr. Reichman and Mrs. Griffin, have negotiated down their liabilities in an attempt to make the Company more attractive to future investors and to make the Company more financially fit going forward. With the Company’s new direction as an oil and gas entity, it was necessary to clear away the old obligations and start anew. Because David and Kathy are major shareholders and officers/directors, accounting regulations require that these debt settlements not be recognized as income, or gains from debt settlement, but rather are recorded as shareholder contributions to capital. Mr. Reichman’s settlement included all liabilities being converted into a long-term note of $500,000 and a short-term note of $25,000. Mrs. Griffin’s liabilities were converted into a long-term note of $200,000 and a short-term note of $10,000. The difference between the new note balances and the old liabilities of $3,108,133 was recorded to additional paid in capital due to the related party nature of the transaction.