STTH..$0.18.. Gain from sale of discontinued operations.. $0.70 per share.. Last trade $0.18..
Form 8-K for STRATUM HOLDINGS, INC.
Gain from sale of discontinued
operations - 2,389,390 (C) 2,389,390
Net income (loss) $ (217,865 ) $ 2,087,239 $ 1,869,374
Net income (loss) per share,
basic
and diluted $ (0.08 ) $ 0.70
Weighted average shares
outstanding 2,655,738 2,655,738
(C) To eliminate the revenues and expenses of Decca Inc. and Decca Ltd. from the historical Statement of Operations of the respective period and to recognize the estimated gain on the sale of the capital stock of Decca Inc. and Decca Ltd. to the Purchasers.
9-Jun-2011
Completion of Acquisition or Disposition of Assets, Financial Statements a
Item 2.01. Completion of Acquisition or Disposition of Assets
On June 3, 2011, Stratum Holdings, Inc. (the "Company") entered into a definitive Stock Purchase Agreement (the "Purchase Agreement") with 1607920 Alberta Ltd., a corporation organized and existing under the laws of Alberta, Canada (the "Canadian Purchaser"), and SB Group Holdings, Inc., a corporation organized and existing under the laws of the State of Delaware (the "American Purchaser" and together with Canadian Purchaser, the "Purchasers'), for the sale of 100% of the capital stock of the Canadian Energy Services subsidiaries of the Company, Decca Consulting, Ltd. ("Decca Ltd.") and Decca Consulting, Inc. ("Decca Inc." and together with Decca Ltd., "Decca"). The Purchasers are private entities owned by an independent personal trust.
The total sale price was $4,600,000.00, subject to certain working capital adjustments, and consisted of the following components: (a) $100,250.00 in cash paid by the American Purchaser and $249,375.00 in cash paid by the Canadian Purchaser to the Company at closing; (b) issuance of a non-interest bearing note by the American Purchaser in favor of the Company in the principal amount of $690,000.00 (the "American Receivables Note") and issuance of a non-interest bearing note by the Canadian Purchaser in favor of the Company in the principal amount of $1,710,000.00 (the "Canadian Receivables Note" and together with the American Receivables Note, the "Receivables Notes"); and (c) issuance of an interest bearing note by the American Purchaser in favor of the Company in the principal amount of $531,875.00, payable in 48 monthly installments of principal and interest (at 8% per annum), commencing on October 1, 2011 (the "American Note") and issuance of an interest bearing note by the Canadian Purchaser in favor of the Company in the principal amount of $1,318,125.00, payable in 48 monthly installments of principal and interest (at 8% per annum), commencing on October 1, 2011 (the "Canadian Note", and together with the American Note, the "Installment Notes").
In conjunction with the issuance of the Receivables Notes and the Installment Notes by the Purchasers to the Company, the Company and the American Purchaser entered into separate Pledge and Security Agreements pursuant to which the American Purchaser granted to the Company security interests in, and pledged to the Company, 100% of the capital stock of the Decca Inc. and Decca Ltd. (effective as of the amalgamation of the Canadian Purchaser with and into Decca Ltd., as described below), respectively, until the obligations to the Company reflected in the underlying Receivables Notes and Installment Notes are fully paid. The security interests granted by the American Purchaser under the Pledge and Security Agreements are subordinated to Decca's secured debt with Century Services, Inc., which has been assumed by the American Purchaser. The Company is no longer a guarantor of such debt.
On June 6, 2011, the Canadian Purchaser amalgamated with and into Decca Ltd. and as a result of such amalgamation the obligations of the Canadian Purchaser under the Purchase Agreement for (a) the payment of all amounts due under the Canadian Note and the Canadian Receivable Notes and (b) its satisfaction of all of its other obligations under the Purchase Agreement, in each case were transferred to Decca Ltd. by operation of law.
The Purchase Agreement contains customary representations and warranties by the parties to each other and provides for the indemnification by the Company to the Purchasers of certain pre-closing liabilities for a three-year period, subject in most instances to a $100,000 threshold and a cap equal to the total original principal amount of the Installment Notes.
Copies of the Purchase Agreement, the Receivables Notes, the Installment Notes and the Pledge and Security Agreements are attached hereto as Exhibits.
Item 9.01. Financial Statements and Exhibits
(b) Pro Forma Financial Information
The Company has prepared unaudited pro forma financial statements to present the impact of the sale of the capital stock of Decca Ltd. and Decca Inc. on the terms indicated above. These unaudited pro forma financial statements should be read in conjunction with the Company's historical consolidated financial statements and the related notes that are included in its Annual Report on Form 10-K for the year ended December 31, 2010 and its Quarterly Report on Form 10-Q for the three months ended March 31, 2011.
The following unaudited pro forma balance sheet as of March 31, 2011 gives effect to the Decca sale as if the receipts of the sales proceeds and recognition of transaction costs had occurred on that date. The following unaudited pro forma statements of operations for the three months ended March 31, 2011 and for the year ended December 31, 2010 give effect to the Decca sale as if the receipts of the sales proceeds and recognition of transaction costs had occurred as of the beginning of each period.
The following unaudited pro forma financial statements are presented for illustrative purposes only and do not necessarily indicate the financial results of the Company had the transaction actually occurred as of the dates indicated. This financial information has been derived from and should be read together with the historical consolidated financial statements and the related notes of the Company incorporated by reference in this Form 8-K. In addition, the allocation of the sales price reflected in the unaudited pro forma financial statements is preliminary and is subject to adjustment and may vary from the actual sales price allocation that will be recorded as of the effective date of the transaction.
STRATUM HOLDINGS, INC.
PRO FORMA BALANCE SHEET
MARCH 31, 2011
As Reported Pro Forma Adjustments As Adjusted
Assets
Current assets:
Cash and cash
equivalents $ 28,864 $ - $ 100,000 (B) $ 128,864
Accounts receivable 4,698,598 (4,050,994 ) (A) - 647,604
Prepaid expenses and
other 126,938 (41,913 ) (A) - 85,025
Notes receivable - - 2,535,000 (B) 2,535,000
Total current assets 4,854,400 (4,092,907 ) 2,635,000 3,396,493
Property and equipment:
Oil and gas properties
(full cost method) 14,683,846 - - 14,683,846
Other property and
equipment 149,676 - - 149,676
14,833,522 - - 14,833,522
Less: Accumulated DD&A (8,739,975 ) - - (8,739,975 )
Net property and
equipment 6,093,547 - - 6,093,547
Other assets:
Goodwill 1,536,313 (1,536,313 ) (A) - -
Other assets 119,472 (119,472 ) (A) - -
Notes receivable - - 1,715,000 (B) 1,715,000
Total other assets 1,655,785 (1,655,785 ) 1,715,000 1,715,000
Total assets $ 12,603,732 $ (5,748,692 ) $ 4,350,000 $ 11,205,040
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long
term debt $ 4,527,012 $ (737,754 ) (A) $ (100,000 ) (B) $ 3,689,258
Accounts payable 4,730,002 (3,738,935 ) (A) - 991,067
Accrued liabilities 1,382,817 (10,688 ) (A) 550,000 (B) 1,922,129
Fair value of oil and
gas derivatives 78,755 - - 78,755
Total current
liabilities 10,718,586 (4,487,377 ) 450,000 6,681,209
Long-term debt, net of
current portion 262,524 - - 262,524
Deferred income taxes 1,578,000 - - 1,578,000
Asset retirement
obligations 341,180 - - 341,180
Total liabilities 12,900,290 (4,487,377 ) 450,000 8,862,913
Stockholders' equity:
Preferred stock - - - -
Common stock 26,557 - - 26,557
Additional paid-in
capital 12,894,490 - - 12,894,490
Accumulated deficit (12,968,310 ) (1,510,610 ) (A) 3,900,000 (B) (10,578,920 )
Accumulated foreign
currency translation (249,295 ) 249,295 (A) - -
Total stockholders'
equity (296,558 ) (1,261,315 ) 3,900,000 2,342,127
Total liabilities and
stockholders equity $ 12,603,732 $ (5,748,692 ) $ 4,350,000 $ 11,205,040
STRATUM HOLDINGS, INC.
PRO FORMA STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2011
Pro Forma
As Reported Adjustments As Adjusted
Revenues:
Energy services $ 7,775,868 $ (7,775,868 ) (C) $ -
Oil and gas sales 756,500 - 756,500
Other 15,323 (15,323 ) (C) -
8,547,691 (7,791,191 ) 756,500
Expenses:
Energy services 7,152,211 (7,152,211 ) (C) -
Lease operating expense 398,123 - 398,123
Depreciation, depletion and
amortization 124,135 - 124,135
Workover expense 103,649 - 103,649
General and administrative 544,387 (221,116 ) (C) 323,271
8,322,505 (7,373,327 ) 949,178
Operating income (loss) 225,186 (417,864 ) (192,678 )
Other income (expense):
Interest expense (132,421 ) 66,676 (C) (65,745 )
Gain (loss) on oil and gas
derivatives (40,920 ) - (40,920 )
Income (loss) from continuing
operations before tax 51,845 (351,188 ) (299,343 )
Benefit (provision) for income
taxes (18,500 ) 119,400 (C) 100,900
Net income (loss) from
continuing operations 33,345 (231,788 ) (198,443 )
Gain from sale of discontinued
operations - 2,389,390 (C) 2,389,390
Net income $ 33,345 $ 2,157,602 $ 2,190,947
Net income per share, basic
and diluted $ 0.01 $ 0.82
Weighted average shares
outstanding 2,655,738 2,655,738
STRATUM HOLDINGS, INC.
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2010
Pro Forma
As Reported Adjustments As Adjusted
Revenues:
Energy services $ 20,058,038 $ (20,058,038 ) (C) $ -
Oil and gas sales 2,625,586 - 2,625,586
Other 57,193 (56,179 ) (C) 1,014
22,740,817 (20,114,217 ) 2,626,600
Expenses:
Energy services 18,470,895 (18,470,895 ) (C) -
Lease operating expense 1,509,274 - 1,509,274
Depreciation, depletion and
amortization 528,298 - 528,298
Workover expense 475,356 - 475,356
General and administrative 1,814,446 (771,704 ) (C) 1,042,742
22,798,269 (19,242,599 ) 3,555,670
Operating income (loss) (57,452 ) (871,618 ) (929,070 )
Other income (expense):
Interest expense (790,235 ) 413,767 (C) (376,468 )
Gain on debt extinguishment 438,967 438,967
Gain (loss) on oil and gas
derivatives 51,155 - 51,155
Income (loss) from continuing
operations before tax (357,565 ) (457,851 ) (815,416 )
Benefit (provision) for income
taxes 139,700 155,700 (C) 295,400
Net loss from continuing
operations (217,865 ) (302,151 ) (520,016 )
Gain from sale of discontinued
operations - 2,389,390 (C) 2,389,390
Net income (loss) $ (217,865 ) $ 2,087,239 $ 1,869,374
Net income (loss) per share,
basic
and diluted $ (0.08 ) $ 0.70
Weighted average shares
outstanding 2,655,738 2,655,738
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(A) To eliminate the assets and liabilities of Decca Consulting, Ltd. ("Decca Ltd.") and Decca Consulting, Inc. ("Decca Inc." and together with Decca Ltd., "Decca") assumed in the sale to the Purchasers from the historical Balance Sheet as of March 31, 2011.
(B) To record the sale of the capital stock of Decca Inc. and Decca Ltd. to the Purchasers, for a total sales price of $4.6 million, payable in a combination of: (i) cash paid at closing, (ii) non-interest bearing notes, payable out of Decca's collected accounts receivable, and (iii) interest bearing notes, payable in 48 monthly installments; and to recognize third party liabilities related to the transaction (both paid and accrued).
(C) To eliminate the revenues and expenses of Decca Inc. and Decca Ltd. from the historical Statement of Operations of the respective period and to recognize the estimated gain on the sale of the capital stock of Decca Inc. and Decca Ltd. to the Purchasers.
(d) Exhibits
Exhibit Number Title of Document
10.1 Stock Purchase Agreement dated as of June 3, 2011, by and among
Stratum Holdings, Inc., SB Group Holdings, Inc. and 1607920
Alberta Ltd.
10.2 Canadian Receivables Note dated June 3, 2011, issued by 1607920
Alberta Ltd. in favor of Stratum Holdings, Inc. in the
principal amount of $1,710,000.
10.3 American Receivables Note dated June 3, 2011, issued by SB
Group Holdings, Inc. in favor of Stratum Holdings, Inc. in the
principal amount of $690,000.
10.4 Canadian Note dated June 3, 2011, issued by 1607920 Alberta
Ltd. in favor of Stratum Holdings, Inc. in the principal amount
of $1,318,125.
10.5 American Note dated June 3, 2011, issued by SB Group Holdings,
Inc. in favor of Stratum Holdings, Inc. in the principal amount
of $531,875.
10.6 Canadian Pledge and Security Agreement dated as of June 3,
2011, by and among SB Group Holdings, Inc. and Stratum
Holdings, Inc.
10.7 American Pledge and Security Agreement dated as of June 3,
2011, by and among SB Group Holdings, Inc. and Stratum
Holdings, Inc.
