History
Pegasi Energy, an East Texas gas and oil explorer, funded its Cornerstone Project through repeated share placements at falling prices, then turned to convertible debt by 2015.
2007-2009: A shell becomes an East Texas explorer
In December 2007 the shell company Maple Mountain Explorations bought Pegasi Energy Resources Corporation, a Texas company, for 17,500,000 new shares. Pegasi's former shareholders held 17,500,000 of 21,000,000 shares and took control. Pegasi's business, the Cornerstone Project in the Rodessa field of East Texas, became the company's only business, with Marion Energy holding a 30% interest. At the same time it sold about 8,378,500 units at $1.20, each a share plus a five-year warrant, expecting about $10,054,000 gross.
The early years brought setbacks and related-party dealing. In June 2008 the CFO concluded the 2007 annual report and March 2008 quarterly report could not be relied on, after errors surfaced while answering SEC comments. They covered reserve quantities, receivables and how Marion's minority interest was shown. In October 2008 the company bought a further 10% of the Marion, TR Rodessa/Jefferson and 59 Disposal assets from TR Energy, owned by CEO Michael Neufeld and Executive VP William Sudderth, taking its ownership to 80% for 4,200,000 new shares. In March 2009 it added $570,000 of loans to its note with Teton, Ltd. at 8%, convertible at $1.60, secured over all assets.
2010-2012: Placements at falling prices
The record is quiet for 2010. In July 2011 the company raised $5,388,900 from non-U.S. investors at $1.00 a unit, for horizontal oil wells, more leases and operating costs. Holders of all its senior debt agreed to a four-year standstill as a condition. In August 2011 the board said the 2010 annual and March 2011 quarterly accounts must be restated, because anti-dilution rights in the December 2007 warrants had likely been triggered, lowering their exercise price. This was the second restatement.
Financing continued. In November 2011 it agreed to sell up to 12.5 million shares at 45 cents, up to about $5.6 million. In March 2012 it sold 4,444,445 shares to MSFG Investments for $2,000,000.25. In September 2012 it raised $4,010,868 at $1.20 a unit for developing Cornerstone, which then covered about 30,205 gross acres, following the Morse #1-H, described as the first horizontal well in the Rodessa field. Shares outstanding were then 61,899,538.
2013-2015: Cheaper money and convertible debt
In December 2013 the company sold 1,944,119 units at $0.90 for $1,749,707, below the September 2012 price. The raising ran into early 2014, in total 2,780,674 units for about $2.5 million. Shares on issue reached about 70.5 million by the end of 2014. In October 2014 the Huntington #4 well was spudded in Marion County, the first of ten planned wells paid for by Pacific World Energy; no results had been seen.
In January 2015 the company sold 12% senior secured convertible notes, $875,000 in total, with warrants. The notes could not be demanded before January 2016 and converted at the lower of $0.12 or a market-based price with a $0.05 floor.
On March 27, 2015 it amended the terms: the floor rose to $0.09, warrants rose to 100% of the notes' value, and each holder's ownership cap rose from 9.99% to 19.99%. It also sold a new $1,000,000 note to one investor. At March 30, 2015 notes sold totalled $1,875,000, with warrants covering 15,625,005 shares. A registration of shares was still owed to holders, and the filings did not state what the new money was for.
Written from the 12 story beats below (2007 to 30 Mar 2015), which come from the company's own announcements and filings.