Stockholders' Equity

12 Months Ended

Dec. 31, 2015

Stockholders Equity

Stockholders' Equity

6. Stockholders’ Equity

Common Stock

During the year ended December 31, 2014, the Company purchased an option to acquire rights in minerals owned by William W. Stewart (related party) for 150,000 shares of common stock valued at $34,500.

On January 30, 2014, the Company entered into a Direct Stock Purchase Agreement with Burlingame Equity Investors II L.P. and Burlingame Equity Investors Master Fund, L.P., whereby the Company purchased an aggregate 1,200,000 shares of its common stock from these entities at a price of $0.19 per share for total consideration of $228,000.

During the year ended December 31, 2015, the Company issued 736,954 shares of common stock as compensation for services; 480,288 shares of common stock were issued for board services ranging in value from $0.10 to $0.20 per share and 256,666 shares of common stock were issued for consulting services provided by three related parties ranging in value from $0.10 to $0.16 per share.

The Company issued 1,000,000 shares of common stock valued at $0.10 per share or $100,000 related to the Wellstar Purchase and Sale Agreement that was executed on December 30, 2015. See Note 3 – Acquisitions, for additional information regarding this transaction.

Preferred Stock 

On September 29, 2011, the Company completed a private placement of its Series A1 Preferred Stock which resulted in the issuance of 522.5 shares for gross proceeds of $5,225,000. 

Effective June 28, 2013, several holders of the Company’s Series A1 Convertible Preferred Stock elected to convert shares of such stock into the Company’s common stock at a redemption price of $0.75 per common share. In connection with those redemptions all such holders agreed to waive all dividend rights on their shares of Series A1 Preferred Stock subsequent to March 30, 2013. Information regarding the conversions is set forth below.

Name of Holder		Number of Shares of Series A1 Preferred Stock Converted	Number of Common Shares Issued
Burlingame Equity Investors II, LP		16	100,800
Burlingame Equity Investors Master Fund, LP		184	1,159,200
Charles B. Davis*		100	1,333,333
Tucker Family Investments LLLP		25	333,333
Mark Venjohn		10	133,333
Pete Haman		35	466,667
Nicholas L. Scheidt*		100	1,333,333
Michael J. Finney		5	66,667
William and Sara Kroske		2.5	33,333
Michael A. Geller		10	133,333
John H. Rosasco		10	133,333
Lyon Oil & Gas Company		10	133,333
T P Furlong		5	66,667
*	Executive Officer and Director of the Company

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 entered into transactions with these entities in exchange for cash consideration, promissory notes and cancellation of certain Series A1 Preferred Shares.

Name of Holder	Cash Consideration		Promissory Note–Principal		Series A1 Preferred Shares Cancelled
Burlingame Equity Investors II, LP	$	4,000	$	48,000		16
Burlingame Equity Investors Master Fund, LP	$	46,000	$	552,000		184

On August 15, 2014, the Company redeemed the remaining 10 shares of Series A-1 Convertible Preferred Stock for consideration of $77,500, of which $15,500 was paid in cash and the remaining amount as a promissory note for $62,000. See additional discussion of the note below in Note 5 – Notes and Advances Payable.

On December 11, 2015, the Company began a private placement of its Series A2 7% Preferred Convertible Stock with a maximum amount of 600 shares at $10,000 per share or $6,000,000. At December 31, 2015, the Company had sold subscriptions equal to $1,750,000 (175 shares) and issued to DNR 90 shares fully paid ($900,000), nonassessable restricted shares of its 7% Series A2 Convertible Preferred Stock as part of the consideration for a settlement agreement entered into with DNR (See Note 5 – Advances and Notes Payable for details of the settlement).

The following are the terms of the Preferred Stock Series A2:

Authorized Shares, Stated Value and Liquidation Preference. Six hundred shares are designated as the Series A2 7% Convertible Preferred Stock, which has a stated value and liquidation preference of $10,000 per share plus accrued and unpaid dividends. 

Ranking.  The Series A2 Preferred Stock will rank senior to future classes or series of preferred stock established after the issue date of the Series A2 Preferred Stock, unless the Company’s Board of Directors expressly provides otherwise when establishing a future class or series. The Series A2 Preferred Stock ranks senior to the Company’s common stock but it is junior to the Company’s outstanding debt and accounts payable.

Dividends. Holders of Series A2 Preferred Stock are entitled to receive dividends at an annual rate of 7.0% of the $10,000 per share liquidation preference, payable quarterly on each of March 31, June 30, September 30 and December 31. Dividends are payable in cash or in shares of common stock (at its then fair market value), at the Company’s election.

Voting Rights. Holders of the Series A2 Preferred Stock will vote together with the holders of the Company’s common stock as a single class on all matters upon which the holders of common stock are entitled to vote. Each share of Series A Preferred Stock will be entitled to such number of votes as the number of shares of common stock into which such share of Preferred Stock is convertible; however, solely for the purpose of determining such number of votes, the conversion price per share will be deemed to be $2.00, subject to customary anti-dilution adjustment. In addition, the holders of the Series A2 Preferred Stock will vote as a separate class with respect to certain matters, including amendments to the Company’s Articles of Incorporation that alter the voting powers, preferences and special rights of the Series A2 Preferred Stock.

Liquidation. In the event we voluntarily or involuntarily liquidate, dissolve or wind up, the holders of the Series A2 Preferred Stock will be entitled, before any distribution or payment out of the Company’s assets may be made to or set aside for the holders of any of the Company’s junior capital stock and subject to the rights of the Company’s creditors, to receive a liquidation distribution in an amount equal to $10,000 per share, plus any unpaid dividends. A merger, consolidation or sale of all or substantially all of the Company’s property or business is not deemed to be a liquidation for purposes of the preceding sentence.

Redemption by the Company. The Series A2 Preferred Stock is redeemable in whole or in part at the Company’s option at any time for cash.  The redemption price is equal to $10,000 per share, plus any unpaid dividends.

Optional Redemption by Holder. Unless prohibited by Colorado law governing distributions to shareholders, the Company, upon 90 days' prior written request from any holders of outstanding shares of Series A2 Preferred Stock, in its sole discretion, may redeem at a redemption price equal to the sum of (i) $10,000 per share and (ii) the accrued and unpaid dividends thereon, to the redemption date, up to one-third of each holder's outstanding shares of Series A2 Preferred Stock on: (i) the first anniversary of the Original Issue Date (the "First Redemption Date"), (ii) the second anniversary of the Original Issue Date (the "Second Redemption Date") and (iii) the third anniversary of the Original Issue Date (the "Third Redemption Date", along with the First Redemption Date and the Second Redemption Date, collectively, each a "Redemption Date"). If on any Redemption Date, Colorado law governing distributions to shareholders prevents the Company from redeeming all shares of Series A2 Preferred Stock to be redeemed, the Company may ratably redeem the maximum number of shares that it may redeem consistent with such law, and may also redeem the remaining shares as soon as it may lawfully do so under such law.

Preemptive Rights.  Holders of the Series A2 Preferred Stock do not have preemptive rights.

Mandatory Conversion. Each share of Series A2 Preferred Stock remaining outstanding will automatically be converted into shares of the Company’s common stock upon the earlier of (i) any closing of underwritten public offering by us of shares of common stock pursuant to an effective registration statement under the Securities Act of 1933, in which the aggregate cash proceeds to be received by us and selling stockholders (if any) from such offering (without deducting underwriting discounts, expenses and commissions) are at least $7,000,000, and per share sales price is at least $3.00  (such price to be adjusted for any stock dividends, combinations or splits or (ii) the date agreed to by written consent of the holders of a majority of the outstanding Series A2 Preferred Stock.

Optional Conversion by Investors.  At any time, each holder of Series A2 Preferred Stock has the right, at the holder’s option, to convert all or any portion of such holder’s Series A2 Preferred Stock into shares of our common stock at a conversion price of $2.00 per share prior to the mandatory conversion of the Series A2 Preferred Stock.