Item
1.01. Entry into a Material Definitive Agreement
On
March 8, 2019, Foothills Exploration, Inc. (the “Company”), closed on a loan transaction with an unaffiliated investor
(“Lender”), pursuant to which, the Company issued a convertible promissory note (“Note”) dated March 6,
2019, in the principal amount of $380,000, with an original issue discount of 10% and received proceeds of $342,000, before giving
effect to certain transactional costs including legal fees. The Company utilized proceeds in part to pay (i) $110,000 to Lender
as partial repayment of that certain convertible promissory note issued on November 1, 2018 and (ii) $40,000 to the Company’s
auditor. As part of this transaction the Company also issued warrants having a five-year term to purchase 608,000 shares of the
Company’s restricted common stock at an exercise price of $0.50 per share with a cashless exercise feature.
The
Note accrues interest at 12% per year, and is due and payable on September 6, 2019 (“Maturity Date”). The Company
may prepay the Note without prepayment penalty if prepaid during the first 180 days following issuance date. No prepayment is
permitted after the initial 180 days from issuance. The warrants are subject to adjustment in certain events such as forward or
reverse stock splits or if subsequent financings are at terms that are more favorable to persons in subsequent issuances of securities.
The
Note agreements give the Lender the right to convert the loan amounts due into common stock at a conversion price equal to the
lesser of (i) 50% multiplied by the lowest trading price during the previous twenty (20) trading day period ending on the latest
complete trading day prior to the date of this Note and (ii) the alternate conversion price (subject to equitable adjustments
for stock splits, stock dividends or rights offerings by the Company relating to the Company’s securities or the securities
of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events).
The “Alternate Conversion Price” means 50% multiplied by the Market Price. “Market Price” means the lowest
trading price for the common stock during the twenty (20) trading day period ending on the latest complete trading day prior to
the conversion date. Should Lender exercise its conversion rights upon terms provided within the Note, the interests of our shareholders
may be materially diluted and a change in control could occur. Net proceeds obtained in this transaction will be used for field
optimization of recently acquired natural gas wells and for general corporate and working capital purposes. No broker-dealer or
placement agent was retained or involved in this transaction.
The
transaction documents contain additional terms and provisions, representations and warranties, including further provisions
covering conversions of debt, remedies on default, venue, and governing law. The summary of the transactions described in
this Form 8-K is qualified in its entirety by reference to the Securities Purchase Agreement, the Convertible Promissory Note
and Form of Warrant, which are filed as Exhibits 10.1, 10.2 and 10.3 respectively, to this report.
Forward-Looking
Statements
All
statements, other than statements of historical facts, included in this Form 8-K that address activities, events or developments
that we expect, believe or anticipate will or may occur in the future are forward-looking statements. These statements are based
on certain assumptions we made based on management’s experience, perception of historical trends and technical analyses,
current conditions, capital plans, drilling plans, production expectations, our ability to raise adequate additional capital,
or enter into other financing arrangements to support our acquisition, development and drilling activities, anticipated future
developments, and other factors believed to be appropriate and reasonable by management. When used in this Form 8-K, words such
as “will,” “possible,” “potential,” “believe,” “estimate,” “intend,”
“expect,” “may,” “should,” “anticipate,” “could,” “plan,”
“predict,” “project,” “profile,” “model,” “strategy,” “future”
or their negatives or the statements that include these words or other words that convey the uncertainty of future events or outcomes,
are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.
In particular, statements, express or implied, concerning our future operating results and returns or our ability to acquire or
develop proven or probable reserves, our ability to replace or increase reserves, increase production, obtain adequate capital
to fund acquisitions or other operations, or generate income or cash flows are forward-looking statements.
Forward-looking
statements are not guarantees of performance. Such statements are subject to a number of assumptions, risks and uncertainties,
many of which are beyond our control. While forward-looking statements are based on assumptions and analyses made by us that we
believe to be reasonable under the circumstances, whether actual results and developments will meet our expectations and predictions
depend on a number of risks and uncertainties which could cause our actual results, performance, and financial condition to differ
materially from our expectations. As a result, no assurance can be given that these assumptions are accurate or that any of these
expectations will be achieved (in full or at all) or will prove to have been correct. We have had sporadic and limited revenue
and our securities are subject to considerable risk. Investors are cautioned to review the Company’s other filings with
the Securities and Exchange Commission for a discussion of risk and other factors that affect our business. Any forward-looking
statement made by us in this Form 8-K speaks only as of the date on which it is made. Factors or events that could cause our actual
results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation
to publicly update any forward-looking statement, whether as a result of new information, future development or otherwise, except
as may be required by law.