Notes and advances payable

12 Months Ended

Dec. 31, 2015

Notes And Advances Payable

Notes and advances payable

7. Notes and advances payable

Notes payable consist of the following as of December 31: 

	2015		2014
Officers, directors and affiliates:
Note payable, interest at 7.5%, due March 2016 (6)	$	150,000	$	150,000
Notes payable, interest 7.0%, due January 2019 (3)		63,464		79,970
Notes payable, interest varies (4)		—		792,151
Collateralized note payable (1)		120,728		120,728
Total officers, directors and affiliates		334,192		1,142,849
Less: Current portion of officers, directors, and affiliates		18,900		288,258
Long-term portion of officers, directors, and affiliates	$	315,292	$	854,591
Unrelated parties:
Notes payable, interest at 7.5%, due March 2016 (7)	$	100,000	$	100,000
Note payable, interest variable (see below) due January 2016, Extended to May 2016 (2)		616,105		549,105
Note payable, interest at 7.0%, due August 2016 (8)		62,000		62,000
Notes payable, interest at 7.0%, due January 2017		32,606		41,668
Notes payable, interest at 7.0%, due January 2016, Extended to May 2016 (5)(8)		183,000		183,000
Total unrelated parties		993,711		935,773
Less: Current portion of unrelated parties		970,953		872,239
Long-term portion of unrelated parties	$	22,758	$	63,534

(1) On April 29, 2013, the Company executed a promissory note under which the Company agreed to pay Apex Financial Services Corp, a Colorado corporation, (“Apex”) the principal sum of $1,000,000, with interest accruing at an annual rate of 7.5%, with principal and interest due on May 31, 2014, and subsequently extended to March 31, 2017. The Company also agreed to assign 75% of its operating income from its oil and gas operations and any lease or well sale or any other assets sales to Apex to secure the debt. Apex is 100% owned by the CEO, director, and shareholder of the Company, Nicholas L. Scheidt. The Company borrowed the full amount of principal on the note, and also paid a loan fee of $10,000. In the event of default on the note and failure to cure the default in ten days, Apex may accelerate payment and the annual interest rate on the note will accrue at 18%. Default includes failure to pay the note when due or if the Company borrows any other monies or offers security in the Company or in the collateral securing the note prior to the note being paid in full. The outstanding principal balance as of December 31, 2015, was $120,728.

(2) On January 28, 2014, we entered into a line of credit loan agreement for $1,500,000 due January 15, 2015 extended to January 28, 2016, and further extended  after December 31, 2015 to May 28, 2016. The terms of the note are as follows: 1) the accrued interest is payable monthly starting February 28, 2014, 2) the interest rate is variable based on an index calculated based on a prime rate as published by the Wall Street Journal index (currently 3.5%) plus an add on index with the current and minimum rate of 6.5%, the note has draw provisions and is secured by seven wells and leases owned by the Company, a certificate of deposit for $500,000 at CityWide Banks pledged by a related party, and 5) the personal guarantee of Nicholas Scheidt, Chief Executive Officer. The amount eligible for borrowing on the Credit Facility is limited to the lesser of (i) 65% of the Company’s PV10 value of its carbon reserves based upon the most current engineering reserve report or (ii) 48 month cumulative cash flow based upon the most current engineering reserve report. In addition to the borrowing base limitation, the Company is required to maintain and meet certain affirmative and negative covenants and conditions in order to draw advances on the Credit Facility. The Credit Facility contains certain representations, warranties, and affirmative and negative covenants applicable to the Company, which are customarily applicable to senior secured loan facilities. Key covenants include limitations on indebtedness, restricted payments, creation of liens on oil and gas properties, hedging transactions, mergers and consolidations, sales of assets, use of loan proceeds, change in business, and change in control. The above-referenced promissory note contains customary default and acceleration provisions and provides for a default interest rate of 21% per annum. In addition, the Credit Facility contains customary events of default, including: (a) failure to pay any obligations when due; (b) failure to comply with certain restrictive covenants; (c) false or misleading representations or warranties; (d) defaults of other indebtedness; (e) specified events of bankruptcy, insolvency or similar proceedings; (f) one or more final, non-appealable judgments in excess of $50,000 that is not covered by insurance; (g) change in control (25% threshold); (h) negative events affecting the Guarantor; and (i) lender in good faith believes itself insecure. In an event of default arising from the specified events, the Credit Facility provides that the commitments thereunder will terminate and the Lender may take such other actions as permitted including, declaring any principal and accrued interest owed on the line of credit to become immediately due and payable. The Credit Facility is secured by a security interest in substantially all of the assets of the Company, pursuant to a Security Agreement, Deed of Trust and Assignment of As-Extracted Collateral entered into between the Company and Citywide Banks. The outstanding principal balance as of December 31, 2015 was $616,105.

(3) On January 1, 2014, we memorialized certain short-term liabilities into formal promissory notes. Information concerning these promissory notes is set forth in the table below.

Name of Holder	Position	Principal Amount		Annual Interest Rate			Monthly P&I Payment Amount		Number of Monthly Payments
Donald W. Prosser	Former CFO & Director	$	28,500		7.00	%	$	564		60
Charles B. Davis	COO & Director	$	66,500		7.00	%	$	1,317		60

The above-referenced promissory notes contain customary default and acceleration provisions and provide for a default interest rate of 18% per annum. The aggregate outstanding principal balance on the notes as of December 31, 2015 was $63,464. 

(4) We issued an unsecured promissory note in the amount of $792,151 on January 1, 2014 to DNR. The note accrues interest at the rate of 2.50% for the calendar years 2014 and 2015, 4.00% for the calendar year 2016, 6.00% for the calendar year 2017 and 8.00% for the remainder of the term of the DNR note. The DNR note matures on January 1, 2019.

On January 19, 2016, but effective December 31, 2015, (the "Effective Date") we entered into a Settlement Agreement with DNR and Tindall Operating Company discussed above under which the DNR Note was deemed paid in full.

(5) In June 2013, 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 issued unsecured promissory notes in the original principal amounts of $48,000 and $552,000, respectively, with interest at 7% per annum payable quarterly and all unpaid interest and principal due on July 23, 2014. We have agreed with the holders of these two existing notes to extend the maturity date of the notes to May 25, 2016. Information concerning the principal pay down is set forth in the following table.

Name of Holder	Principal Balance before Pay down		Principal Pay down		Remaining Principal Balance
Burlingame Equity Investors II, LP	$	44,000	$	26,251	$	17,749
Burlingame Equity Investors Master Fund, LP	$	506,000	$	340,749	$	165,251

(6) On March 28, 2012, the Company executed a Promissory Note with Fairfield Management Group, LLC (“Fairfield”), a related party. The note accrues interest at 7.5%, payable monthly and has a maturity date of March 31, 2016. During the fiscal year ended December 31, 2015, Fairfield assigned this note to Donald Prosser (former CFO and Director). Subsequent to the year ended December 31, 2015, the Company and Mr. Prosser extended the due date to March 31, 2017.

(7) On March 28, 2012, the Company executed a promissory note with Pikerni, LLC (“Pikerni”). This note was extended and amended on April 1, 2015. The note accrues interest at 7.5% and is payable quarterly. The maturity date of the note is April 1, 2016, with principal payments of $5,000 due on June 30, 2015, September 30, 2015, December 31, 2015, and March 31, 2016, and the remaining principal balance of $80,000 due on April 1, 2016. At December 31, 2015, the Company was in default on this note. The Company is currently negotiating an amendment with Pikerni to cure the default.

(8) On August 15, 2014, the Company redeemed the remaining 10 shares of Series A-1 Convertible Preferred Stock outstanding for consideration of $77,500, of which $15,500 was paid in cash and the remaining amount as a promissory note for $62,000. The note accrues interest at 7% per annum, payable in two installments as follows;

a. A payment of $31,000, plus accrued and unpaid interest was payable on August 15, 2015

b. A payment of $31,000, plus accrued and unpaid interest shall be payable on August 15, 2016

The Company did not make the August 15, 2015, principal payment and is currently in default on this note. The Company is negotiating new terms with the note holder.