Annual report pursuant to Section 13 and 15(d)

SUBSEQUENT EVENTS

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SUBSEQUENT EVENTS
12 Months Ended
Mar. 31, 2017
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS

NOTE 14 – SUBSEQUENT EVENTS

 

On April 4, 2017, the Company paid the required quarterly dividend on the Series B Preferred Stock by way of the issuance of 59,146 shares of our common stock to the preferred shareholders at a fair market value of $34,843, based on the closing price of the Company’s common stock ($0.59 per share) on March 31, 2017.

 

The Company is in breach of certain terms of the IBC Loan Agreement, including maintaining net worth at required levels, exceeded caps on certain administrative expenses, failure to reimburse IBC for certain loan related costs and expenses, and failure to comply with certain post-closing covenants relating to the assignment of oil and gas wells, mortgages and the completion of certain curative title requirements. The Company’s current management is negotiating a potential resolution to the breaches with IBC. 

 

However, IBC can provide the Company notice of default at any time and require immediate repayment of the entire loan. If the IBC loan was accelerated, the Company could be forced to sell assets, IBC could foreclose on the Company’s assets, substantially all of which are pledged to secure the amounts due under the IBC Loan Agreement, curtail our business plans and/or seek bankruptcy protection, any of which may cause the value of the Company’s securities to decline in value or become worthless.

 

On April 27, 2017, the Company entered into a service agreement (the “Service Agreement”), effective on May 1, 2017, with Enerjex Resources (“Enerjex”) to outsource the management of our back-office functions for a fixed monthly fee. Under the terms of the Service Agreement, Enerjex will be responsible for performing all back-office services for the Company, including all data entry and bookkeeping, financial reporting, management reporting, reserve reporting, SEC compliance, audits, filings, and any other services required to maintain the Company’s good standing with all local, state, and federal laws. Enerjex will not be responsible for any field operations, including drilling, operating or maintaining any wells or leases, of the Company under the terms of the Service Agreement. Enerjex will receive a fee of $150,000 per month for services rendered, plus any pre-approved out-of-pocket travel expenses. The monthly fee may be reduced to the extent the Company retains employees or consultants to perform certain of the functions contemplated to be performed by Enerjex.

 

On August 29, 2016, to be effective as of August 26, 2016, the Company entered into a Consulting Agreement with Mr. Azar to serve as the Chairman of the Company. Pursuant to the Consulting Agreement, Mr. Azar agreed to provide services to the Company in his role as Chairman of the Company as customarily performed by a Chairman of a public company and as requested by the Board of Directors from time to time. The term of the agreement was for one year (the “Initial Term”); provided that the agreement automatically extended for additional one year periods after the Initial Term (each an “Automatic Renewal Term” and the Initial Term together with all Automatic Renewal Terms, if any, the “Term”), subject to the Renewal Requirements (described below), in the event that neither party provided the other written notice of their intent not to automatically extend the term of the agreement at least 30 days prior to the end of the Initial Term or any Automatic Renewal Term. The Term could only be extended for an Automatic Renewal Term, provided that (i) Mr. Azar was re-elected to the Board of Directors at the Annual Meeting of Stockholders of the Company immediately preceding the date that such Automatic Renewal Term begins; and (ii) the Board of Directors affirmed his appointment as Chairman for the applicable Automatic Renewal Term (or fails to appoint someone else as Chairman prior to such applicable Automatic Renewal Term)(the “Renewal Requirements”). The agreement was to expire immediately upon the earlier of: (i) the date upon which Mr. Azar no longer served as Chairman; and (ii) any earlier date requested by either (1) the Company (as evidenced by a vote of a majority of the Board of Directors (excluding Mr. Azar) at a meeting of the Board of Directors), or (2) Mr. Azar (as evidenced by written notice to the Board of Directors). Additionally, the Company could terminate the agreement immediately and without prior notice if Mr. Azar was unable or refuses to perform the services required of him under the agreement, and either party could terminate the agreement immediately and without prior notice if the other party was in breach of any material provision of the agreement. The Company agreed to pay Mr. Azar $100,000 per year during the term of the agreement, subject to annual reviews by the Compensation Committee, after the first year. Mr. Azar agreed to not compete against the Company, unless approved in writing by the Board of Directors, during the term of the agreement.

 

On May 16, 2017, the Board of Directors appointed Fred S. Zeidman to serve as Chairman of the Board, replacing Mr. Azar, who remains as a director serving on the Board. In connection with that action, on May 23, 2017, the Consulting Agreement with Mr. Azar was terminated.

 

The employment agreement of Mr. Anthony C. Schnur, the Company’s former Chief Executive Officer was terminated in connection with Mr. Schnur’s resignation as Chief Executive Officer and director of the Company effective on June 2, 2017. In connection with the departure of Mr. Schnur, Mr. Schnur entered into a severance agreement and release with the Company, whereby (i) his employment agreement with the Company was terminated, (ii) he entered into a mutual release with the Company; (iii) he was granted 120,000 shares of unregistered common stock (to be issued in installments of 10,000 per month) and a monthly cash payment of $14,000 for twelve months; and (iv) he was granted reimbursement of the payment of his COBRA premiums through (a) the one year anniversary of the termination or (b) until he is eligible to participate in the health insurance plan of another employer, whichever is sooner, and provided that the amount of such health benefits shall reduce his monthly cash payment.

 

On June 19, 2017, a holder of the Company’s Series B Convertible Preferred Stock converted 143,492 shares of Series B Convertible Preferred Stock into 1,024,943 shares of common stock of the Company.

 

As of June 30, 2017, the 408,508 outstanding shares of Series B Preferred Stock had accrued $153,191 in quarterly dividends. The Company plans to pay that dividend by way of the issuance of 593,762 shares of our common stock to the preferred shareholders at a fair market value of $0.258, based on the closing price of the Company’s common stock on June 30, 2017, which shares have not been issued to date and are not included in the number of issued and outstanding shares disclosed throughout this report (or the ownership of the Series B Preferred Stock holders).