| Debt | Note 3 – Debt Debt consists of the following at March 31,
2020 and December 31, 2019:
March 31, 2020 December 31, 2019
Convertible notes payable, short term:
Note payable, (in default) $ 1,000,000 $ 1,000,000
Note payable, (in default) 50,000 50,000
Note payable (in default) 35,000 35,000
Note payable (due on demand) 19,125 19,125
Total notes payable, short-term $ 1,104,125 $ 1,104,125 Note Payable – Short-term On December 27, 2013 the Company borrowed $1,050,000
under an unsecured credit facility with a private, third-party lender. The facility is represented by a promissory note (the “December
2013 Note”) with an original maturity date of March 12, 2014. In connection with the December 2013 Note,
the Company granted the lender a warrant (the “Warrant”) exercisable to purchase 100,000 shares of its common stock
at an exercise price of $15.00 per share. In connection with an extension to April 2015, the parties amended the date for exercise
of the Warrant to be a period commencing April 7, 2015 and expiring on the third anniversary of such date. The Company issued no
additional warrants to the lender in connection with the extension of the Note to the New Maturity Date. If the Company failed
to pay the Note on or before its New Maturity Date, the number of shares issuable under the Warrant increases to 1,333,333 and
the exercise price drops to $0.75 per share. All other terms of the Warrant remained the same. The Warrant has been treated as
a derivative liability whereby the value of Warrant is estimated at the date of grant and recorded as a derivative liability and
as a discount on the note payable. The warrant liability is revalued to fair value at each reporting date with the corresponding
income (loss) reflected in the statement of operations as change in derivative liability. The discount is amortized ratably through
the original maturity date and each of the extended maturity dates. The warrant expired as of March 31, 2020 and is no longer exercisable. In connection with an extension of the December
2013 Note to April 7, 2016, the Company agreed to enter into a definitive revenue sharing agreement with the lender to grant the
lender under the revenue sharing agreement an irrevocable right to receive a monthly payment equal to one half of one percent (1/2%)
of the gross revenue derived from the share of all hydrocarbons produced at the wellhead from the Nicaraguan Concessions and any
other oil and gas concessions that the Company and its affiliates may acquire in the future. This percent increased to one percent
(1%) when the Company did not pay the December 2013 Note in full by August 7, 2014. Therefore, the revenue sharing agreement is
fixed at one percent (1%). The value of the one percent (1.0%) definitive revenue sharing agreement granted to the lender as consideration
for the extension of the maturity date to December 7, 2014 was estimated to be $964,738. Such amount was recorded as a reduction
of oil and gas properties and as a discount on the renewed note payable and amortized ratably over the extended term of the note. In connection with the extension of the maturity
date of the December 2013 Note to April 7, 2016, the Company also (i) issued the lender 20,000 shares of restricted common stock;
(ii) decreased the exercise price of the warrant to $5.00 per share and extended the term of the warrant to a period commencing
on the New Maturity Date and expiring on the third anniversary of such date; and (iii) paid $50,000 toward amounts due under the
December 2013 Note. The Company issued no additional warrants to the lender in connection with the extension of the Note to the
New Maturity Date. If the Company failed to pay the December 2013 Note on or before its New Maturity Date, the number of shares
issuable under the Warrant increases to 1,333,333 and the exercise price drops to $0.75 per share. All other terms of the warrant
remained the same. The warrant expired as of March 31, 2020 and December 31, 2019. The December 2013 Note may be prepaid without
penalty at any time. The December 2013 Note is subordinated to all existing and future senior indebtedness, as such terms are defined
in the Note. The December 2013 Note is in default and the Company is pursuing a resolution to this default, including completing
the extinguishment of the note balance, accrued interest and revenue sharing agreement through an exchange agreement which is further
described below; however, there can be no assurances such efforts will be successful. The Warrant was treated as a derivative liability
whereby the value of Warrant is estimated at the date of grant and recorded as a derivative liability and as a discount on the
note payable. The warrant liability was revalued to fair value at each reporting date with the corresponding income (loss) reflected
in the statement of operations as change in derivative liability. The Warrant expired as of March 31, 2020 and December 31, 2019.
The discount was amortized ratably through the original maturity date and each of the extended maturity dates. The Company recognized
the value of the 20,000 shares of common stock issued ($104,000) and the increased value of the outstanding warrants due to the
decrease in their exercise price ($68,716) as an additional discount on the note payable to be amortized ratably over the extended
term of the underlying note. On July 29, 2019 the Company entered into a
non-binding term sheet with the holder of the December 2013 Note which has an unpaid principal balance of $1.0 million as of March
31, 2020 and December 31, 2019. The term sheet, if consummated, will resolve the default contingencies regarding the December 2013
Note through an exchange agreement. Under the proposed terms the Company will make a cash payment of $100,000 within 60 days of
the execution of an Exchange Agreement and will issue 740,500 shares of common stock to the holder in exchange for and cancellation
of the following obligations:
● December 2013 Note with an original principal balance of $1,050,000 and current principal balance of $1,000,000;
● Accrued and unpaid interest of approximately $505,000 as of March 31, 2020 related to the December 2013 Note;
● Common Stock Purchase Warrant issued December 27, 2013 to acquire 100,000 shares of common stock with an exercise price of $5.00 per share;
● Preemptive Rights Agreement dated December 27, 2013; and
● Revenue Sharing Agreement issued May 30, 2014 representing one half of one percent (1/2%) of the gross revenue derived from the share of all hydrocarbons produced at the wellhead from the Nicaraguan Concessions. The term sheet is non-binding until such time
as the cash payment is made and the common stock are issued to the holder and there can be no assurance that the Company will successfully
complete the Exchange Agreement. The Company did not make the required $100,000 cash payment within the contractual 60-day time
period and therefore the term sheet is not binding on the parties. The parties are attempting to resolve the payment default and
otherwise complete the Exchange Agreement as described above. The following notes were extinguished on June
19, 2019:
● On November 8, 2016 the Company borrowed a total of $200,000 from an individual under a convertible note payable with the conversion rate of $5.00 per share. The note required no principal or interest payments until its maturity date of November 7, 2017 and bore interest at 8% per annum. The note was not paid on its original maturity date.
● On April 20, 2017, the Company borrowed $40,000 under an unsecured credit facility with a private, third-party lender which is convertible at a rate of $5.00 per share. The note required no principal or interest payments until its maturity date of April 19, 2018 and bore interest at 8% per annum. The note was not paid on its maturity date. On June 19, 2019, the Company and the holder
of these two convertible notes entered into an exchange agreement whereby the two convertible notes with an unpaid principal balance
of $240,000 and related accrued interest totaling $45,020 were extinguished. Under the exchange agreement the Company issued the
individual a new warrant exercisable to purchase up to 570,000 shares of common stock at an exercise price of $0.50 per share with
a termination date of June 19, 2026 without any price protection or dilution provisions in exchange for the extinguishment of the
two convertible notes and related accrued interest. The Black-Scholes valuation of the warrant issued to the holder on June 19,
2019 totaled $62,564. Following is an analysis of gain on extinguishment
of the obligations pursuant to the Exchange Agreement on June 19, 2019:
Amount
Obligations extinguished on the date of exchange, June 19, 2019:
Convertible Notes balance at the date of exchange, June 19, 2019 $ 240,000
Accrued interest on the Convertible Notes at the date of exchange, June 19, 2019 45,020
Securities issued in exchange for the obligations extinguished on the date of the exchange, June 19, 2019:
Value of the stock purchase warrant issued on the date of exchange, June 19, 2019 (62,564 )
Gain on exchange of debt and warrant obligations $ 222,456 Other than the December 2013 Note, at March
31, 2020 the Company had short-term notes outstanding with entities or individuals as follows:
● On July 7, 2015 the Company borrowed a total of $50,000 from an individual under a convertible note payable with the conversion rate of $5.60 per share. The term of the note was for a period of 90 days and bears interest at 8% per annum. In connection with the loan, the Company issued the entity a warrant for the purchase of 5,000 shares of common stock at $5.60 per share for a period of five years from the date of the note. The terms of the note and warrant provide that should the note and interest not be paid in full by its maturity date, the number of warrants automatically increases to 10,000 shares and the exercise price remains at $5.60 per share. The ratchet provision in the stock purchase warrant requires that the warrant be accounted for as derivative liability. The Company recorded the estimated fair value of the warrant totaling $22,314 as a discount on note payable and as a derivative liability in the same amount, as of the origination date. On October 7, 2015, the note was extended for an additional 90 days or until January 7, 2016 and later to May 7, 2016 and ultimately to October 7, 2016. The Company and its lender are pursuing a resolution of this default. There can be no assurance that the Company will be successful in this regard. In consideration, the Company granted the lender common stock purchase warrants exercisable to purchase 5,000 shares of common stock on each extension date at an exercise price of $5.60 per share, which warrants were immediately exercisable and expire in five years. The value of the 5,000 warrants issued on January 7, 2016 totaled $379 and $131 on May 7, 2016, both of which were amortized over the extension period (through October 7, 2016). The related warrant derivative liability balance was $239 and $662 as of March 31, 2020 and December 31, 2019, respectively. See Note 5.
● On July 15, 2015, the Company borrowed a total of $35,000 from an individual under a convertible note payable with the conversion rate of $5.60 per share. The term of the note was for a period of 90 days and bears interest at 8% per annum. In connection with the loan, the Company issued the entity a warrant for the purchase of 3,500 shares of common stock at $5.60 per share for a period of five years from the date of the note. The terms of the note and warrant provide that should the note and interest not be paid in full by its maturity date, the number of warrants automatically increases to 7,000 shares and the exercise price remains at $5.60 per share. The ratchet provision in the stock purchase warrant requires that the warrant be accounted for as a derivative liability. The Company recorded the estimated fair value of the warrant totaling $11,827 as a discount on note payable and as a derivative liability in the same amount, as of the origination date. On October 15, 2015, the note was extended for an additional 90 days or until January 15, 2016 and later to October 15, 2016. The Company is pursuing a resolution of this default including an additional extension from the holder. There can be no assurance that the Company will be successful in this regard. In consideration, the Company granted the lender common stock purchase warrants exercisable to purchase an aggregate of 3,500 shares of common stock on each extension date at an exercise price of $5.60 per share, which warrants were immediately exercisable and expire in five years. The value of the 3,500 warrants on January 15, 2016 totaled $267 and $74 on May 15, 2016, both of which were amortized over the extension period (through October 15, 2016). The related warrant derivative liability balance was $167 and $454 as of March 31, 2020 and December 31, 2019, respectively. See Note 5.
● On May 21, 2018 the Company borrowed $13,125 under an unsecured promissory note with a private third-party lender which is convertible into common stock at a rate of $0.50 per share. During June 2019 and August 2019 the Company borrowed an additional $50,500 and $5,500, respectively, from this same third-party lender under the same terms. The note is due on demand and bears interest at 8% per annum. In October 2019 the Company repaid $50,000 in principal on this demand note. The outstanding principal on the notes totaled $19,125 as of March 31, 2020 and December 31, 2019. |
