excerpts:
Q: Why is the Company implementing a reverse stock split?
A: Our Board believes that effecting a one-for-twenty five reverse stock split at this time is in the best interest of shareholders and for the following primary reasons:
· First, our Board believes that we have an insufficient number of unissued shares to allow for capital to be obtained from the investment community and to allow for subsequent growth.
· Second, our Board believes that the current market price of our Common Stock may impair its acceptability to many investors, including institutional investors, professional investors and other members of the investing public and that the reverse stock split will encourage greater interest in our Common Stock by the investment community.
· Third, our Board also believes that potential executives and other employees may be less likely to consider working for a company with a low stock price, regardless of the size of the company’s market capitalization. If the Reverse Stock Split successfully increases the per-share market price of our Common Stock (of which there can be no assurance), the Board believes this increase could enhance our Company’s ability to attract and retain key executives and other employees.
· Fourth, to the extent that the reverse stock split does succeed in attracting more investor interest in the stock, shareholders may also benefit from improved trading liquidity of the stock.
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upon effectiveness of the reverse stock split, the total number of our common stock outstanding will be proportionately reduced from 494,170,082 shares to approximately 18,966,803 shares.
Finally, it is anticipated that the price per share of our common stock will increase to reflect the effect of the reverse stock split. Our stock price tends to be volatile, and it is not possible to predict the post-reverse stock split price exactly, but it should be approximately twenty-five times the pre-reverse stock split price. (For example, if our common stock closes at $0.05 per share immediately preceding the reverse stock split, it should trade on at about $1.25 per share post-reverse stock split. However, the actual price could, of course, be higher or lower.
The reverse stock split will NOT:
- Affect any shareholder's percentage ownership interest in the Company;
- Affect any shareholder's proportionate voting power;
- Substantially affect the voting rights or other privileges of any shareholder (unless the shareholder holds fewer than twenty-five shares of our common stock).
Q: How will the reverse stock split affect the market capitalization of the Company?
A: The mechanics of the reverse stock split will have no effect on our market capitalization. It is impossible to predict the performance of the stock price after the reverse stock split, however, and changes in the price due to trading would, of course affect the market capitalization.
Q: What are the risks associated with implementing a reverse stock split?
A: Our Board took into consideration a number of negative factors associated with reverse stock splits, including: the negative perception of reverse stock splits held by many investors, analysts and other stock market participants; the fact that the stock price of some companies that have recently effected reverse stock splits has subsequently declined back to pre-reverse split levels; the fact that having a greater number of outstanding shares aids employee retention and recruitment by allowing a company to offer option grants for a larger absolute number of shares; and the costs associated with implementing the reverse stock split. The Board, however, determined that these negative factors were outweighed by the intended benefits described above.
Q: When will the reverse stock split take place?
A: The reverse stock split will become effective on the date the Amended and Restated Articles of Incorporation effecting the reverse stock split is filed with the Delaware Secretary of State.
Q: Why did the Board choose 1-for-25?
A: Our Board selected the ratio taking into account a number of factors, including the trading price and market for our common stock at the time of the reverse stock split, the prices of peer companies, and overall stock market and economic conditions.
Q: Did the Board consider any other alternatives other than the reverse stock split?
A: Yes, the board considered several alternatives including (1) an increase in the authorized shares of the Company, (2) a loan collateralized by the assets of the Company and (3) a partnership with a third party by selling an interest in the Company leases. The Board has considered all of these items for some time and has had discussions with professionals advising them of the advantages and disadvantages of each of the above alternatives.
First, while an increase in the authorized shares of the Company could alleviate some of the existing problems the Company is facing, the board believes that this would not be in the best interest of the Company from a long-term perspective. A greater number of shares outstanding will have a negative impact on anticipated future earnings per share of the Company and the board believes that a reverse stock split would still be required in the future. Additionally, potential capital partners that are in discussions with the Company will not participate with an increase in the authorized shares of the Company.
Second, the Company has had discussions with potential lending parties and is not a viable candidate for a loan based upon the current condition of the Company. Oil and gas equipment is discounted significantly by potential lenders in relation to their ability to liquidate and obtain proceeds. Additionally, potential lenders will require the issuance of warrants to provide them with a rate of return they require and the Company has no ability to issue warrants because of the lack of unissued shares of Common Stock. The Board believes that the Company’s ability to obtain a lender in the future will be increased with the requested reserve stock split and the ability to issue warrants.
Finally, the Company does not believe it is in the best interest of the shareholders to sell an interest in the Company leases. The Company has had discussions with third parties and the requirements by them for the transaction are considered onerous and not acceptable.
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Q: What happens if the reverse stock split is not approved by the shareholders?
A: The Board believes that if the recommended reverse stock split is not approved by the shareholders, the viability of the Company as a going concern is at significant risk. Additionally, if shareholder approval is not received, the Board believes that the Company will have no avenue to attract required capital and shareholder value will be greatly compromised.
AI
