STTH.. $0.228
STRATUM HOLDINGS, INC.
Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
2011 2010
Assets
Current assets:
Cash and cash equivalents $ 297,382 $ 63,133
Accounts receivable 665,538 605,041
Prepaid expenses and other 83,356 122,348
Notes receivable from sale of subsidiary 2,115,520 -
Fair value of oil and gas derivatives 1,190 -
Current assets of discontinued operations - 4,032,400
Total current assets 3,162,986 4,822,922
Property and equipment:
Oil and gas properties, evaluated (full cost method) 14,737,863 14,560,532
Other property and equipment 133,692 133,692
Total property and equipment 14,871,555 14,694,224
Less: Accumulated depreciation, depletion and amortization (8,982,913 ) (8,611,835 )
Net property and equipment 5,888,642 6,082,389
Other assets:
Notes receivable from sale of subsidiary 1,441,262 -
Noncurrent assets of discontinued operations - 1,659,431
Total other assets 1,441,262 1,659,431
Total assets $ 10,492,890 $ 12,564,742
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Current portion of long-term debt - stockholders $ 476,282 $ 730,709
Current portion of long-term debt - others 2,969,506 3,079,380
Accounts payable 693,298 881,904
Accrued liabilities 1,483,448 1,241,840
Fair value of oil and gas derivatives - 37,835
Current liabilities of discontinued operations - 4,652,823
Total current liabilities 5,622,534 10,624,491
Long-term debt, net of current portion 233,718 337,378
Deferred income taxes 1,587,100 1,559,500
Asset retirement obligations 356,710 333,670
Total liabilities 7,800,062 12,855,039
Stockholders’ equity (deficit):
Preferred stock, $.01 par value per share, 1,000,000 shares authorized,
None issued - -
Common stock, $.01 par value per share, 5,000,000 shares authorized,
2,655,738 shares issued and outstanding 26,557 26,557
Additional paid in capital 12,894,490 12,894,490
Accumulated deficit (10,228,219 ) (13,001,655 )
Accumulated foreign currency translation adjustment - (209,689 )
Total stockholders’ equity (deficit) 2,692,828 (290,297 )
Total liabilities and stockholders’ equity (deficit) $ 10,492,890 $ 12,564,742
See accompanying notes to unaudited consolidated financial statements.
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STRATUM HOLDINGS, INC.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended September 30,
2011 2010
Revenues:
Oil and gas sales $ 738,760 $ 689,502
Other - 38
Total revenues 738,760 689,540
Operating expenses:
Lease operating expense 347,596 320,411
Depreciation, depletion and amortization 125,421 216,333
Workover expense 36,519 93,461
Selling, general and administrative 299,223 201,686
Total operating expenses 808,759 831,891
Operating loss (69,999 ) (142,351 )
Other income (expense):
Interest expense (77,884 ) (52,078 )
Gain on oil and gas derivatives 16,135 160
Loss before income taxes (131,748 ) (194,269 )
Benefit for income taxes 31,000 66,000
Net loss from continuing operations (100,748 ) (128,269 )
Discontinued operations, net of tax - (1,694 )
Net loss $ (100,748 ) $ (129,963 )
Net loss per share, basic and diluted:
Net loss from continuing operations $ (0.04 ) $ (0.05 )
Discontinued operations, net of tax - (0.00 )
Net loss $ (0.04 ) $ (0.05 )
Weighted average shares outstanding, basic and diluted 2,655,738 2,655,738
See accompanying notes to unaudited consolidated financial statements.
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STRATUM HOLDINGS, INC.
Consolidated Statements of Operations
(Unaudited)
Nine Months Ended September 30,
2011 2010
Revenues:
Oil and gas sales $ 2,323,964 $ 2,061,977
Other - 1,012
Total revenues 2,323,964 2,062,989
Operating expenses:
Lease operating expense 1,171,780 1,151,154
Depreciation, depletion and amortization 371,078 626,234
Workover expense 207,357 310,630
Selling, general and administrative 869,612 676,645
Total operating expenses 2,619,827 2,764,663
Operating loss (295,863 ) (701,674 )
Other income (expense):
Interest expense (206,759 ) (288,688 )
Gain on debt extinguishment - 438,967
Gain on oil and gas derivatives 34,486 82,660
Loss before income taxes (468,136 ) (468,735 )
Benefit for income taxes 143,600 159,300
Net loss from continuing operations (324,536 ) (309,435 )
Discontinued operations, net of tax 3,097,972 224,679
Net income (loss) $ 2,773,436 $ (84,756 )
Net income (loss) per share, basic and diluted:
Net loss from continuing operations $ (0.12 ) $ (0.12 )
Discontinued operations, net of tax 1.16 0.09
Net income (loss) $ 1.04 $ (0.03 )
Weighted average shares outstanding, basic and diluted 2,655,738 2,655,738
See accompanying notes to unaudited consolidated financial statements.
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STRATUM HOLDINGS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
2011 2010
Cash flows from operating activities:
Net loss from continuing operations $ (324,536 ) $ (309,435 )
Adjustments to reconcile net loss from continuing
operations to net cash provided by (used in) operations
Depreciation, depletion and amortization 371,078 626,234
Benefit for income taxes (143,600 ) (159,300 )
Stock based compensation - 11,525
Gain on debt extinguishment - (438,967 )
Unrealized gain on oil and gas derivatives (39,025 ) (82,660 )
Changes in current assets and liabilities 31,497 22,164
Other changes, net 15,313 63,988
Net cash flows from continuing operations (89,273 ) (266,451 )
Net cash flows from discontinued operations 659,916 743,334
Total cash flows from operating activities 570,643 476,883
Cash flows from investing activities:
Receipt of cash from sale of subsidiary 350,000 -
Collection of notes receivable from sale of subsidiary 1,132,542 -
Decrease in restricted cash - 1,613,637
Purchase of property and equipment (177,331 ) (148,025 )
Net cash flows from investing activities 1,305,211 1,465,612
Cash flows from financing activities:
Payments of long term debt (396,111 ) (1,013,876 )
Proceeds from long term debt 48,150 32,725
Net payments of stockholder advances (120,000 ) (460,854 )
Net cash flows from continuing operations (467,961 ) (1,442,005 )
Net cash flows from discontinued operations (1,173,644 ) (512,111 )
Total cash flows from financing activities (1,641,605 ) (1,954,116 )
Net increase (decrease) in cash and cash equivalents 234,249 (11,621 )
Cash and cash equivalents at beginning of period 63,133 142,703
Cash and cash equivalents at end of period $ 297,382 $ 131,082
Supplemental cash flow data:
Cash paid for interest - continuing operations $ 154,961 $ 145,610
Cash paid for interest - discontinued operations 120,065 320,205
Supplemental investing activity:
Notes receivable issued for sale of subsidiary - current $ 2,839,324 -
Notes receivable issued for sale of subsidiary - noncurrent 1,850,000 -
Supplemental financing activity:
Gain on debt extinguishment - related party $ - $ 74,097
See accompanying notes to unaudited consolidated financial statements.
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STRATUM HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
Interim Financial Information – The accompanying consolidated financial statements have been prepared by Stratum Holdings, Inc. (“we”, “our” or the “Company”) without audit, in accordance with accounting principles generally accepted in the Unites States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, these consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to fairly state the financial position of the Company as of September 30, 2011, the results of its operations for the three month and nine month periods ended September 30, 2011 and 2010, and cash flows for the nine month periods ended September 30, 2011 and 2010. Certain prior year amounts have been reclassified to conform with the current year presentation. These financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2010.
Recently Issued Accounting Pronouncements – In June 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-05, “Presentation of Comprehensive Income.” This update eliminates the option to present other comprehensive income and its components in the statement of changes in equity, effective for fiscal years beginning after December 15, 2011. The adoption of ASU 2011-05 is not expected to have a material impact on the Company’s financial statements.
(2) Discontinued Operations
On June 3, 2011, the Company entered into a Stock Purchase Agreement (“SPA”) with a private company to sell the capital stock of its Canadian Energy Services subsidiaries, Decca Consulting, Ltd. and Decca Consulting, Inc. (collectively referred to as “Decca”), for a total sales price of $4,600,000 (plus a working capital adjustment). The sales price consisted of the following components: (a) Cash amount of $350,000 paid at closing; (b) Non-interest bearing notes issued by the purchaser in the amount of $2,400,000 (plus an estimated working capital adjustment of $439,324), payable out of the post-closing collection of Decca’s accounts receivable (as of September 30, 2011, note payments of $1,132,542 had been made by the purchaser); and (c) Interest bearing notes issued by the purchaser in the amount of $1,850,000, payable in 48 monthly installments of principal and interest (at 8% per annum), commencing on October 1, 2011 (as of September 30, 2011, $408,738 of this note amount was classified as a current asset). The Company recognized a preliminary pre-tax gain from this sale in the nine months ended September 30, 2011 in the amount of $2,765,595.
As noted above, the purchaser has issued non-interest bearing “receivables” notes to the Company in the total amount of $2,839,324 (including an estimated working capital adjustment of $439,324). The Company believes that these non-interest bearing notes will be paid by the purchaser from the post-closing collection of Decca’s accounts receivable within the current operating cycle. At the present time, the Company and the purchaser are operating under a mutually acceptable agreement for the payment of the non-interest bearing “receivables” notes to the Company from the post-closing collection of Decca’s accounts receivable. The Company and the purchaser expect to ultimately restructure the interest bearing “installment” notes, however, no definitive agreement has yet been reached in that regard.
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The results of discontinued operations of Decca for the nine months ended September 30, 2011 and 2010, including the estimated gain on sale in 2011, are summarized below (such amounts in the first column reflect Decca’s operating results only through the date of the sale):
Nine Months Ended September 30,
2011 2010
Energy services revenues $ 12,768,505 $ 14,736,836
Cost of energy services (11,720,562 ) (13,469,582 )
Gross profit 1,047,943 1,267,254
General and administrative expenses (424,301 ) (606,670 )
Interest expense (120,065 ) (320,205 )
Gain on sale (estimated) 2,765,595 -
Net income before income taxes 3,269,172 340,379
Provision for income taxes (171,200 ) (115,700 )
Net income $ 3,097,972 $ 224,679
The above provision for income taxes reflects the sales gain as a permanent tax difference in the 2011 period as it essentially reflects the reversal of goodwill impairments recorded in previous years for which no temporary differences were originally recognized. The following table presents the current assets, noncurrent assets and current liabilities applicable to the Company’s discontinued operations as of September 30, 2011 and December 31, 2010:
September 30, December 31,
2011 2010
Current assets:
Cash $ - $ 79,103
Accounts receivable - 3,927,635
Prepaid expenses - 25,662
- 4,032,400
Noncurrent assets:
Goodwill - 1,536,313
Other assets - 123,118
- 1,659,431
Current liabilities:
Current portion of long term debt - (1,806,581 )
Accounts payable - (2,841,850 )
Accrued liabilities - (4,392 )
- (4,652,823 )
Net assets of discontinued operations $ - $ 1,039,008
