Each one in plain English, with the numbers worked through for a shareholder.
9 Feb 2010debt financing▼ BadMajor
On February 3, 2010 Macquarie declared the loan in default after the limited waiver expired and demanded immediate repayment of the $5,000,000 principal plus interest, and ended any further lending under the $25 million facility. The company says it lacks enough current assets to repay, and Macquarie may foreclose on its oil and gas properties, so investors may lose all or part of their investment. This follows the May 2009 waiver and puts the company's assets at risk.
The company announced it ended the proposed combination with Lion Energy and Gold Star; the letter of intent expired December 31, 2009 and the board chose not to extend it. The board said Lion's existing exploration commitments were not compatible with the combined business's strategic objectives, so the share exchange announced in November 2009 will not happen.
The company announced a non-binding letter of intent for a combination with Lion Energy Corp. and Gold Star Resources Corp. (both Canadian). Lion would issue about 40 million shares, roughly 26 million to Southern Star shareholders and 14 million to Gold Star shareholders, in exchange for all shares of both. The deal still needs due diligence, final documents, regulatory and court approval, and shareholder votes of all three companies.
The company had drawn the full $5.0 million of the Macquarie borrowing base by January 2009 (up from $3.5 million in October 2008). On May 29, 2009 Macquarie waived compliance with three financial ratio tests only until June 30, 2009. In return the company must pay Macquarie 100% of net operating cash flow toward the loan, get Macquarie's written consent for any capital spending, and release Macquarie from prior claims.
In a company press release (not independently verified), the company said it spudded its third Haynesville test well, Boyce-Pate 16-1, on February 19, 2009, with results expected later in March. The L. Moore 20-1 Cotton Valley well was testing at about 400 Mcf/d from its first zone, and Cash Point 30-1 completion is expected by early April 2009 after pipeline work. It continues the drilling programme from 2008; the release names the earlier Haynesville wells as Atkins-Lincoln 17-1 and A.S. Burt 20-1 and says nine Cotton Valley tests have been drilled, five producing.
This amended filing gives the detail on the restatement: stock option expense for the quarter ended November 30, 2007 was overstated by $993,725 (about $0.03 per share) because it was booked at grant instead of over the service period. The company says later periods need no adjustment, no covenant was breached, and costs should be immaterial. The amended 10-QSB is due by February 16, 2009, and management will also evaluate its disclosure controls.
On January 20, 2009 the company sold 500,000 new shares at $0.41 each, raising $205,000, to director Michael O. Aldridge (who joined the board in December 2008). The shares are restricted and carry no registration rights, and they dilute existing holders slightly.
What it means for a shareholder
500,000 new shares at $0.410 to raise about $205,000. Shares on issue before the raise aren't in the record, so the dilution can't be worked out.
On January 14, 2009 the company said its quarter ended November 30, 2007 financial statements can no longer be relied on, because part of stock-based compensation expense was recorded incorrectly. The error had already been corrected in the quarter ended February 29, 2008, and the company will file an amended report for the earlier quarter.
22 Dec 2008material agreement termination● Neutral
The land manager hired in October 2008, Deborah Null, ended her employment effective December 18, 2008, using the 90-day probationary period that lets either side leave without notice or pay. Her 100,000 options at $0.60 are void, so that small potential dilution disappears.
The company hired Deborah Null as land manager, effective October 27, 2008, at a $130,000 base salary with a possible bonus of up to 50% of salary. She received options on 100,000 shares at $0.60, expiring October 27, 2013 and vesting one-third on each of the first three anniversaries. Severance is 25% of base salary if terminated without cause, and her unvested options vest on a change of control. It is a small, routine hire with minor dilution.
The company furnished a press release, which is company-stated and not independently verified. It says the Burt 20-1 well was spudded October 25, 2008 as a second Haynesville test in the Sentell Field, following an announced Haynesville discovery at Atkins-Lincoln 17-2 (completion techniques still being evaluated). The first five Cotton Valley wells are producing, averaging 2.3 MMcf/d from October 13 to 27 and sold at $7.67 per MMBtu in September; the Cash Pointe 30-1 awaits completion. The company has drawn $3.5 million of the $5.0 million Macquarie borrowing base and says the $25 million revolver remains available while it works with Macquarie on the borrowing base and drilling priorities. It also hired Deborah Null as land manager. This indicates production and a new discovery, though no Haynesville production rates are given.
On September 25, 2008 the company dismissed its auditor Dale Matheson Carr-Hilton Labonte LLP and on October 1, 2008 engaged Weaver and Tidwell, L.L.P. of Houston. The dismissed auditor's report on the fiscal years ended May 31, 2008 and 2007 included a going-concern paragraph citing lack of revenues, history of losses and need for additional funds. The company reports no disagreements or reportable events with the former auditor.
On August 8, 2008 the company ended its financial advisory letter agreement with Imperial Capital, LLC (dated June 8, 2007). It paid $90,000 in cash, agreed to pay 3% of gross proceeds of each Macquarie funding above the initial $5 million borrowing base until Imperial has received $750,000, and issued a warrant for 1,250,000 shares at $1.00 expiring July 11, 2013. Imperial released all claims. Shareholders bear the cash costs and further dilution risk.
18 July 2008capital raising announcement● NeutralMajor
On July 16, 2008 the company drew $2.5 million under an amended and restated Macquarie credit agreement dated July 11, 2008. It replaces the May 2008 $2,000,000 short-term loan (due September 13, 2008) with a revolving facility of up to $25 million due July 11, 2011, with an initial borrowing base of $5 million, of which $2.5 million remains available. The draw included $526,838 for the working capital deficit. The loan is secured by a first-priority lien on all property, with oil and gas proceeds assigned to the lender. The company also issued warrants: 750,000 shares at $1.00 (replacing the earlier warrant) and a second warrant for 1,897,419 shares at $1.00, net of the first, both expiring July 11, 2013. This extends the debt deadline but adds dilution risk. The filing text provided is truncated, so further terms are not covered.
On June 4, 2008 the company granted CEO William David Gibbs options on 1,000,000 shares at $1.00, exercisable for five years. They vest in three roughly equal parts on June 4 of 2009, 2010 and 2011, and can only be exercised while he is a director or officer. This is management compensation that could dilute shareholders if exercised.
On May 16, 2008 the company signed a secured term loan with Macquarie Bank Limited for up to $2,000,000, all due September 13, 2008. Up to $1,079,050.32 goes to current accounts payable and the remaining $920,949.68 to general corporate purposes. Interest is the lesser of prime plus 2% and the highest lawful rate, all oil and gas sale proceeds are assigned to Macquarie, and it holds a first-priority lien on all the company's property. It also received a warrant for 750,000 shares at $1.00 expiring May 16, 2013, so shareholders face possible dilution.
From January 1, 2008 the company pays Big Sky Management, owned by Eric Boehnke, $10,000 per month for CEO-type services provided through Boehnke. Boehnke disclosed his interest and abstained from the board vote. Big Sky is the same company that assigned the D Duck interest in the 2006 restructuring.
The company signed a consulting agreement with Sierra Pine Resources International, owned by director Bruce Ganer: $10,000 per month, 750,000 options at $1.09 exercisable to November 22, 2011 (vesting in three equal parts through 2009), and a $60,000 bonus per new well at start of commercial production. This is a related-party arrangement with a director.
The company signed a consulting agreement with Larry Keller: $175 per hour, 500,000 options at $1.09 exercisable to November 22, 2009 (half vested immediately, half on November 22, 2008), and a $25,000 bonus per successful well on Lincoln Atkins 18-1, Lincoln Atkins 8-1 and Atkins 18-2.
On September 18, 2007 the company issued a 10% US$1,300,000 convertible debenture to Gobbet Management Inc., due September 18, 2009 and convertible at US$0.50 per share, for general corporate use. Full conversion would mean 2,600,000 new shares (calculated from the filing's figures). The company's address is now Houston, Texas.
The company amended a February 8, 2007 subscription with Venture Capital Asset Management AG, adding 11.6 units at US$50,000 each (US$580,000). Venture Capital now holds 48.6 units for US$2,430,000, entitling it to about 60% of net production proceeds from the Atkins Lincoln 18-1 and 8-1 wells. Units convert at US$0.50 per share; full conversion would give 4,860,000 shares, or 13.6% on 30,806,251 shares outstanding. For shareholders, this gives funding but a large share of those wells' proceeds and possible dilution.
On January 22, 2007 the company appointed Sunland Production Company as operator of its D Duck Prospect interests, replacing the operator role it took in the earlier purchase. Fees include $6,500 per month drilling fee, $650 per month supervision and $850 per day for engineering, on a one-year renewable term with 60 days' notice to end.
The company's subsidiary Southern Star Operating bought a 20% interest in the D Duck Prospect for $290,962.27 (agreement dated November 2, 2006) and became operator. A December 22, 2006 amendment corrected the restructuring agreement: Big Sky Management actually held and transferred only 20%, not 40%. Together the subsidiary now holds a 40% working interest. This corrects the November restructuring terms.
Auditor Staley, Okada & Partners resigned on December 8, 2006 and the company hired Dale Matheson Carr-Hilton Labonte LLP. The prior auditor's report on the years to May 31, 2006 and 2005 expressed substantial doubt about the company's ability to continue as a going concern; the filing reports no disagreements with them.
The company announced it had started drilling its first well, the Atkins-Lincoln 18-1 in Bossier Parish, Louisiana, planned to reach about 9,950 feet. A second well about a mile away is planned next under a Nabors Drilling USA contract, on a 5,300-acre block. This is the first drilling step after the move into oil and gas; no results are reported.
The company, now named Southern Star Energy, told shareholders about the restructuring agreement and expected board change. A 7.5-for-1 forward split on November 13, 2006 raised shares from 7,555,000 to 56,662,500. At closing (anticipated November 22, 2006) Mutter and Hollmann would give up their shares (transfers to Boehnke plus cancellations) leaving 21,037,500 shares outstanding, with Boehnke holding 6,000,000 (28.5%) and as sole director. Closing is still subject to conditions. This continues the November 6 restructuring and gives the share and board details.
The company (then named Surge Enterprises) issued a 10% US$600,000 convertible debenture to Sovereign Services Limited, due November 1, 2008 and convertible at US$3.75 per share. It also signed a restructuring agreement on November 6, 2006 to drop its software and website business (Surge Marketing, to go to Troy Mutter) and move into oil and gas via an interest in the D Duck Prospect in Bossier and Caddo Parishes, Louisiana. Mutter and Frank Hollmann would give up 4,750,000 shares for cancellation and 800,000 shares to Eric Boehnke, who assigns the prospect interest through Big Sky Management. The filing says closing is not assured. A Meagher Oil & Gas assignment gave Southern Star 40% of certain leases. This follows the earlier officer filings and starts the oil and gas turn.
