Posted : about 3 hours ago By XUN CEO
Xun Pres
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Joined: 12/14/2012(UTC)
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Thank you Enggeo for your post above and the question in Post #1. We have replicated your post below:
Jerry: I have a few questions and comments I hope you can speak to. Again, great news about Rice 15!!
A. In the S-1 you mention you may need to reverse split to hit the 50 cents needed to draw on the ABS line of credit. At the current price of say $.001 this would require a reverse of 500:1 meaning the company would have about 1,000,000 shares outstanding (550,000,000 or so divided by500 and 10,000,000 total shares (5,000,000,000 divided by 500)-I assume the split would also minimalize the preferred shares from 50,000,000 to 100,000 with a share price of $.50 ($.001 times 500). Given that the company has no real earnings I would think the value per share would quickly deteriorate down to less than a penny. So, is this really an option?
B. Also, I believe it takes a minimum of 90 days to notify the SEC and shareholders of the imminent split so wouldn't that be a time frame that is untenable for operations-I assume the company is unfunded as of this writing.
C. Can you advise as to how long you think it will take the SEC to act on your submittal of the S-1? In other words is there a typical time like say 2 months for this to occur?
D. Lastly, are there other sources of income being sought to go forward with the Rice 5 wells and is there a number for that (5 x $167,000) such as a CPN or is it financing for all 30 or nothing?
I know these are speculative and probably a little too intimate but A. I really hope you don't reverse split and B. the well flow dynamics in 15 seem to be motivation to move forward even if its one well at a time to develop some income and breathing room established from Xun's own resources. Thanks for whatever response you deem appropriate.
Question A: . In the S-1 you mention you may need to reverse split to hit the 50 cents needed to draw on the ABS line of credit. At the current price of say $.001 this would require a reverse of 500:1 meaning the company would have about 1,000,000 shares outstanding (550,000,000 or so divided by500 and 10,000,000 total shares (5,000,000,000 divided by 500)-I assume the split would also minimalize the preferred shares from 50,000,000 to 100,000 with a share price of $.50 ($.001 times 500). Given that the company has no real earnings I would think the value per share would quickly deteriorate down to less than a penny. So, is this really an option?
Response A: The $15 million REF is an agreement for the Company to drawdown the $15 million over a period of 36 months. It is our option as to whether or not we request the drawdown. It is not a necessity or contractual requirement for us to utilize the REF. If the market conditions are not favorable and it is not in the best interests of the Company or the Shareholders, the Company will not utilize the REF or portions of it. Back to your question, is this really an option? Only if the Company feels it is in the best interests of the Company and the Shareholders.
Question B: Also, I believe it takes a minimum of 90 days to notify the SEC and shareholders of the imminent split so wouldn't that be a time frame that is untenable for operations-I assume the company is unfunded as of this writing.
Response B: A stock reverse split is a complicated process which requires the Company to file a Preliminary Information Statement (Pre 14C) to the shareholders of the Company, which also is subject to comments from the SEC. After all comments are cleared with the SEC, a Definitive Information Statement (DEF 14C) is filed with the SEC. Depending on the stock ownership, a shareholder vote must be taken, either by consent or by proxy vote. Once the DEF 14C is filed with the SEC, there are many more steps afterwards such as obtaining approval from FINRA, obtaining a new CUSIP number, etc. A stock reverse split is not something that happens over night and may take many months before it becomes effective. If a stock reverse split was to occur, it would be completed on the basis of what is in the best interests for the Company and the shareholders of record.
Question C: Can you advise as to how long you think it will take the SEC to act on your submittal of the S-1? In other words is there a typical time like say 2 months for this to occur?
Response C: The AGS $15 million financing consists of several stages of which we are in stage 3.
The first stage is the Reserve Equity Financing Agreement (REF), which was executed on July 11, 2013. The Company entered into an amended and restated reserve equity financing agreement (the “Financing Agreement”) with AGS Capital Group, LLC, (“AGS”). Pursuant to the Financing Agreement, the Company has the right, but not the obligation, to issue $15,000,000 of the Company’s common stock to AGS over the course of 3 years. The Company has full control and discretion over the timing and amount of any shares that they sell to AGS when the Market Price, as defined in the Financing Agreement, is $0.50 or higher per share. For each advance, the Company may issue an amount of stock up to $250,000. Such advance will not exceed more than 200% of the average daily trading volume for the previous 10 trading days. The purchase price of the shares shall be set at ninety percent (90%) of the average of the three (3) lowest closing bid prices of the stock during the ten (10) consecutive weekday trading days (the “Pricing Period”) immediately after the date on which the Company provides an advance notice. The Company, at its option, may select a safety net price for any specified advance which the Company will not sell shares to AGS under that advance when the Purchase Price (Market Price less 10% discount) falls below such safety net price during the Pricing Period. The Company issued 4,081,633 shares of common stock as a commitment fee deposit towards the commitment fee of $40,000 to be deducted from the first advance.
Also on July 11, 2013, the Company also entered into a registration rights agreement with AGS (the “RRA,” and along with the Financing Agreement, the “Agreements”). According to the RRA, the Company must file a registration statement on Form S-1, registering the shares of common stock which may be issued to AGS pursuant to the Financing Agreement within thirty (30) days of the date of the RRA.
The second step is for the Company to register the common stock in order for AGS to acquire the common stock and have the ability to resell the common stock. On September 17, 2013, the Company filed a S1 Registration Statement (prospectus) with the SEC which relates to the resale of up to 79,081,633 shares of common stock, $.0001 par value, of the Company, by the selling stockholder (the “Selling Stockholder”), including (i) up to 75,000,000 Put Shares that we may put to AGS, pursuant to the Drawdown Agreement and (ii) 4,081,633 commitment shares of our common stock we paid to AGS as a fee for providing the facility. The Selling Stockholder is selling all of the shares of common stock offered by this prospectus. It is anticipated that the Selling Stockholder will sell these shares of common stock from time to time in one or more transactions, in negotiated transactions or otherwise, at prevailing market prices or at prices otherwise negotiated. We will not receive any proceeds from the sale of shares by the Selling Stockholder. However, we will receive the sale price of any common stock that we sell to AGS under the Drawdown Agreement.
After the filing of the S1 Registration Statement, the SEC will review the S1 Registration Statement. The process for reviewing such filings is that the SEC has 30 days after the filing was made to make comments. Once comments are made, we have to respond to them, which is usually in the form of an amended S1 filing, and then they have another 30 days to review and make comments. If they do not make comments in the 30 days, it is deemed effective.
We filed the S1 on September 17, 2013, so the SEC should be providing comments any day now unless they accepted the S1, which they would provide notice that the S1 is now made effective. Not sure how the shutdown has affected the S1 registration statement process, therefore we are expecting a delay in receiving comments from the SEC.
If they make comments, this is not disclosed unless specific action is required by the SEC, like the last time, they requested an amendment to the REF which required us to withdraw the S1, amend the REF and then re-file a new S1.
Stage 3 will continue until the SEC has no further comments on the S1 Registration statement. One of the key factors of any S1 Registration statement is that the S1 Registration statement requires the most current financial statements. We delayed filing the new S1 after July 11, 2013 to incorporate our May 31, 2013 audited financial statements. It would not surprise us to receive comments which would include us to incorporate the August 31, 2013 financial statements.
Stage 4 is the SEC allowing the S1 Registration statement to become effective.
Stage 5 would be the Company drawing down on the $15 million financing and AGS performing. We are limited to a maximum drawdown of up to $250,000 per drawdown. Please review the REF for detailed information on the mechanics of the draw downs, link: AGS REF Agreement
Question D: . Lastly, are there other sources of income being sought to go forward with the Rice 5 wells and is there a number for that (5 x $167,000) such as a CPN or is it financing for all 30 or nothing?
Response D: We are in discussions with various individuals and parties (referred to as "Investor" hereinafter) to complete our financing of the 45 Oil Well Venango Project. It has been challenging to raise the necessary capital for this project. Each Investor has their own criteria and too complicated and varied to discuss in this response. Each investor has their own risks which are used by them in negotiating with us. One of the most common risks is that the Company is not generating revenue at the current time. Each investor wants to know what their exit strategy is on the worst scenario. If the Company is not generating revenue and the worst case is no oil found or produced, the investor is left holding the bag with no exit strategy. Over the last year, we have found investors who are willing to take the risk with their exit strategy being the Convertible Promissory Note (CPN) and they choose to exit by converting the CPN into common stock at a discount to the market at their discretion. We have been using the proceeds from such investors and slowly completing our first oil well. Once we complete the well, Rice #15, and start generating revenue, this risk is mitigated and will open doors to a new line of investors. Over the last year, we have received Term Sheets for funding and have rejected many of them as it was not in the best interests of the Company or its shareholders to accept them. Common reason for rejection of a Term Sheet for funding is usually excessive return for the associated risk (in simple terms - too greedy!!!).
We thank you for your interest, support and faith in the Company.
Respectfully,
Xun Energy, Inc.
Jerry G. Mikolajczyk
President and CEO
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