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As Of Filer Filing As/For/On Docs:Pgs Issuer Agent 12/02/05 Torrent Energy Corp SB-2/A 1:147 1085037
Document/Exhibit Description Pages Size
1: SB-2/A Pre-Effective Amendment to Registration of HTML 750K
Securities by a Small-Business Issuer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2/A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 TORRENT ENERGY CORPORATION |
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(Name of small business issuer in its charter) |
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1311 |
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84-0503749 | |
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State or jurisdiction of |
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(Primary Standard Industrial |
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(I.R.S. Employer |
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600-666 Burrard Street |
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(Address and telephone number of principal executive offices) |
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600-666 Burrard Street |
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(Address of principal place of business or intended principal place of business) |
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Mark Gustafson, President |
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(Name, address and telephone number of agent for service)
Copy of communications to: Bernard I. Pinsky, Esq. |
Approximate date of proposed sale to the public: As soon as practicable after the registration statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
1
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [ ] |
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CALCULATION OF REGISTRATION FEE
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Title of each |
Amount to be registered (1) |
Proposed maximum |
Proposed maximum |
Amount of |
|
Common stock, |
1,650,000 |
$1.63 |
$2,689,500.00 |
$316.55 |
|
Common stock, |
12,500,000(3) |
$1.63 |
$20,375,000.00 |
$2,398.14 |
|
Total |
14,150,000 |
$1.63 |
$23,064,500.00 |
$2,714.69 |
|
(1) |
An indeterminate number of additional shares of common stock shall be issuable pursuant to Rule 416 to prevent dilution resulting from stock splits, stock dividends or similar transactions and in such an event the number of shares registered shall automatically be increased to cover the additional shares in accordance with Rule 416 under the Securities Act. |
|
(2) |
Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(c) and Rule 457(g) under the Securities Act of 1933, using the average of the high and low price as reported on the Over-The-Counter Bulletin Board on August 31, 2005, which was $1.63 per share. |
|
(3) |
Estimated number of shares of common stock underlying Series C Convertible Preferred Stock as provided under the Investor Registration Rights Agreement dated as of July 12, 2005 between our company and Cornell Capital Partners, LP. |
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
2
PROSPECTUS Subject to completion
|
|
_____________, 2005 |
TORRENT ENERGY CORPORATION
14,150,000 Shares of Common Stock of Torrent Energy Corporation
This prospectus relates to the resale by the selling stockholders of up to 14,150,000 shares of common stock of Torrent Energy Corporation, a Colorado Corporation, which may be resold by selling security holders named in this prospectus. This resale of up to 14,150,000 includes 1,650,000 shares of our common stock and up to 12,500,000 shares of common stock underlying Series C Convertible Preferred Stock. The Series C Convertible Preferred Stock is convertible into common stock at any time by dividing the dollar amount being converted by the lower of $3.00 or 85% of the volume weighted average trading price per common share of our company for five trading days. The holder of the Series C Convertible Preferred Stock may only convert up to $950,000 of Series C Convertible Preferred Stock into common shares in any 30 day period; provided, however, that in no event can the holder of the Series C Convertible Preferred Stock convert more than an aggregate of $750,000 of Series C Convertible Preferred Stock in any 30 day period at the conversion price of 85% of the volume weighted average trading price per common share for five trading days. Each share of Series C Convertible Preferred Stock will automatically convert into shares of our common stock at the conversion price then in effect two years from the date of issuance of each share. Our company may redeem the Series C Convertible Preferred Stock by paying 120% of the invested amount together with any unpaid dividends. This prospectus relates to the resale of the common stock.
The shares were acquired by the selling shareholders directly from us in private offerings that were exempt from registration under the U.S. securities laws. We have been advised by the selling security holders that they may offer to sell all or a portion of their shares of common stock being offered in this prospectus from time to time. The selling stockholders may sell common stock from time to time in the principal market on which the stock is traded at the prevailing market price or in negotiated transactions. The selling stockholders may be deemed underwriters of the shares of common stock which they are offering. We will not receive any proceeds from the resale of shares of common stock by the selling security holders. However, we have received proceeds from the sale of shares of common stock that are presently outstanding. We will pay the expenses of registering these shares.
Our common stock is registered under Section 12(g) of the Securities Exchange Act of 1934 and is listed on the Over-The-Counter Bulletin Board under the symbol "TREN". The last reported sales price per share of our common stock as reported by the Over-The-Counter Bulletin Board on August 31, 2005, was $1.68.
Our business is subject to many risks and an investment in our common stock will also involve a high degree of risk. You should invest in our common stock only if you can afford to lose your entire investment. You should carefully consider the various risk factors described beginning on page 6 before investing in our common stock.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The information in this Prospectus is not complete and may be changed. This Prospectus is included in the Registration Statement that was filed by Torrent Energy Corporation with the Securities and Exchange Commission. The selling stockholders may not sell these securities until the registration statement becomes effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the sale is not permitted.
Please read this prospectus carefully. You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information.
The date of this prospectus is _______________, 2005.
3
The following table of contents has been designed to help you find important information contained in this prospectus. We encourage you to read the entire prospectus.
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PAGE |
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PROSPECTUS SUMMARY |
5 |
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OUR BUSINESS |
5 |
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THE OFFERING |
5 |
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RISK FACTORS |
6 |
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USE OF PROCEEDS |
11 |
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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS |
12 |
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PLAN OF OPERATIONS |
14 |
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BUSINESS |
22 |
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EMPLOYEES |
28 |
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DESCRIPTION OF PROPERTIES |
28 |
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LEGAL PROCEEDINGS |
28 |
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MANAGEMENT |
28 |
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EXECUTIVE COMPENSATION |
29 |
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CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS |
31 |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND |
32 |
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DESCRIPTION OF SECURITIES |
33 |
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INDEMNIFICATION FOR SECURITIES ACT LIABILITIES |
34 |
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PLAN OF DISTRIBUTION |
35 |
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PENNY STOCK |
36 |
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SELLING STOCKHOLDERS |
37 |
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LEGAL MATTERS |
38 |
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EXPERTS |
38 |
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AVAILABLE INFORMATION |
39 |
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INDEX TO FINANCIAL STATEMENTS |
40 |
4
PROSPECTUS SUMMARY
The following summary highlights selected information contained in this prospectus. This summary does not contain all the information you should consider before investing in the securities. Before making an investment decision, you should read the entire prospectus carefully, including the "risk factors" section, the financial statements and the secured convertible notes to the financial statements.
OUR BUSINESS
We are an exploration stage company primarily engaged in the exploration of coalbed methane in the Coos Bay region of Oregon. Through our wholly-owned subsidiary, Methane Energy Corp., we hold leases to approximately 101,000 acres of prospective coalbed methane lands in the Coos Bay region. Methane Energy operates the exploration project in the Coos Bay region. We changed our name from Scarab Systems, Inc. to Torrent Energy on July 13, 2004 to reflect the change in our business operations towards coalbed methane exploration. The change in our business operations occurred as a result of our entering into a Lease Purchase and Sale Agreement, through Methane Energy, on April 30, 2004. We were previously a web design and internet application developer.
For the three months ended June 30, 2005, we generated no revenue and a net loss of $1,345,998. In addition, for the year ended March 31, 2005, we generated no revenue and a net loss of $2,701,460. As a result of recurring losses from operations and working capital deficiency, our auditors, in their report dated June 3, 2005, have expressed substantial doubt about our ability to continue as going concern.
Our principal offices are located at 600 - 666 Burrard Street, Vancouver, British Columbia, Canada V6C 2X8, and our telephone number is (604) 639-3118. We are a Colorado corporation.
THE OFFERING
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Common stock offered by selling stockholders |
Up to 14,150,000 shares |
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Common stock to be outstanding after offering |
Up to 38,898,293 shares |
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Use of Proceeds |
We will not receive any proceeds from the sale of the common stock. |
|
Over-The-Counter Bulleting Board Symbol |
TREN |
The above information regarding common stock to be outstanding after the offering is based on 24,748,293 shares of common stock outstanding as of August 31, 2005 and assumes the subsequent conversion of our issued Series C Convertible Preferred Stock and the exercise of our issued warrants and options.
To obtain funding for our ongoing operations, we entered into three Securities Purchase Agreements with three accredited investors on July 11, 2005 for the sale of an aggregate of 1,650,000 shares of our common stock at a price of $2.00 per share for gross proceeds of $3,300,000. On July 19, 2005 the investors provided us with an aggregate of $3,300,000, pursuant to the terms of the Securities Purchase Agreements. We also entered into an Investment Agreement with an accredited investor on July 12, 2005 for the sale of 12,500 shares of our Series C Stock for gross proceeds of $12,500,000 pursuant to the terms of the Investment Agreement, of which the sale of 6,000 shares of Series C Stock for gross proceeds of $6,000,000 closed within two business days following the date of the Investment Agreement, the sale of 3,500 shares of Series C Stock for gross proceeds of $3,500,000 closed two business days prior to the date of this registration statement was filed, pursuant to the Investor Registration Rights Agreement, with the Securities and Exchange Commission, and the sale of 3,000 shares of Series C Stock for gross proceeds of $3,000,000 is to close on the fifth business day following the date this registration statement is declared effective by the Securities and Exchange Commission.
The Series C Stock is convertible into common stock at any time by dividing the dollar amount being converted by the lower of $3.00 or 85% of the volume weighted average trading price per common share of our company for five trading days. Based on the volume weighted average trading price per common share for the five
5
trading days ending September 22, 2005, 8,680,556 shares of our common stock would be issuable upon conversion of all of the Series C Stock. The holder of the Series C Stock may only convert up to $950,000 of Series C Stock into common shares in any 30 day period; provided, however, that in no event can the holder of the Series C Stock convert more than an aggregate of $750,000 of Series C Stock in any 30 day period at the conversion price of 85% of the volume weighted average trading price per common share for five trading days. Each share of Series C Stock will automatically convert into shares of our common stock at the conversion price then in effect two years from the date of issuance of each share. Our company may redeem the Series C Stock by paying 120% of the invested amount together with any unpaid dividends. This prospectus relates to the resale of the common stock.
See the "Description of Securities" sections for a complete description of the common stock and the Series C Stock.
RISK FACTORS
This investment has a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described below and the other information in this prospectus. If any of the following risks actually occur, our business, operating results and financial condition could be harmed and the value of our stock could go down. This means you could lose all or a part of your investment.
Risks Relating to Our Business:
We have a history of losses which may continue, which may negatively impact our ability to achieve our business objectives.
We incurred net losses of $2,701,460 for the year ended March 31, 2005 and $374,606 for the year ended March 31, 2004. For the three months ended June 30, 2005, we incurred a net loss of $1,345,998. We cannot assure you that we can achieve or sustain profitability on a quarterly or annual basis in the future. Our operations are subject to the risks and competition inherent in the establishment of a business enterprise. There can be no assurance that future operations will be profitable. We may not achieve our business objectives and the failure to achieve such goals would have an adverse impact on us.
If we are unable to obtain additional funding our business operations will be harmed and if we do obtain additional financing our then existing shareholders may suffer substantial dilution.
We will require additional funds to sustain and expand our oil and gas exploration activities. We anticipate that we will require up to approximately $15,000,000 to fund our continued operations for the fiscal year 2006. Additional capital will be required to effectively support the operations and to otherwise implement our overall business strategy. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. The inability to obtain additional capital will restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will likely be required to curtail our marketing and exploration plans and possibly cease our operations. Any additional equity financing may involve substantial dilution to our then existing shareholders.
Our independent auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.
In their report dated June 3, 2005, our independent auditors stated that our financial statements for the year ended March 31, 2005 were prepared assuming that we would continue as a going concern. Our ability to continue as a going concern is an issue raised as a result of recurring losses from operations and working capital deficiency. We continue to experience net operating losses. Our ability to continue as a going concern is subject to our ability to obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities. Our continued net operating losses increases the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.
6
We have a limited operating history and if we are not successful in continuing to grow our business, then we may have to scale back or even cease our ongoing business operations.
We have no history of revenues from operations and have no significant tangible assets. We have yet to generate positive earnings and there can be no assurance that we will ever operate profitably. Our company has a limited operating history and must be considered in the development stage. Our success is significantly dependent on a successful acquisition, drilling, completion and production program. Our operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. We may be unable to locate recoverable reserves or operate on a profitable basis. We are in the development stage and potential investors should be aware of the difficulties normally encountered by enterprises in the development stage. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our company.
If we are unable to retain the services of Mr. Gustafson or if we are unable to successfully recruit qualified managerial and field personnel having experience in oil and gas exploration, we may not be able to continue our operations.
Our success depends to a significant extent upon the continued service of Mr. Mark Gustafson, our President, Chief Financial Officer and a director. Loss of the services of Mr. Gustafson could have a material adverse effect on our growth, revenues, and prospective business. We do not maintain key-man insurance on the life of Mr. Gustafson. In addition, in order to successfully implement and manage our business plan, we will be dependent upon, among other things, successfully recruiting qualified managerial and field personnel having experience in the oil and gas exploration business. Competition for qualified individuals is intense. There can be no assurance that we will be able to find, attract and retain existing employees or that we will be able to find, attract and retain qualified personnel on acceptable terms.
As our properties are in the exploration and development stage, there can be no assurance that we will establish commercial discoveries on our properties.
Exploration for economic reserves of oil and gas is subject to a number of risk factors. Few properties that are explored are ultimately developed into producing oil and/or gas wells. Our properties are in the exploration and development stage only and are without proven reserves of oil and gas. We may not establish commercial discoveries on any of our properties.
It is unlikely that we will discover and establish a profitable coal bed methane gas production in the Coos Bay region.
Currently, there is no commercial production of coal in the state of Oregon. Additionally, there are no coal reserves attributed to the state of Oregon. Coal Bed Methane Gas only accounts for a small percentage of all natural gas production in the United States, and the closest coal bed methane production to the Coos Bay Region occurs in the state of Wyoming. As a result, it is unlikely that we will discover any significant amount of coal bed methane in the Coos Bay Region or be able to establish a well that will produce a profitable amount of coal bed methane gas.
The potential profitability of oil and gas ventures depends upon factors beyond the control of our company.
The potential profitability of oil and gas properties is dependent upon many factors beyond our control. For instance, world prices and markets for oil and gas are unpredictable, highly volatile, potentially subject to governmental fixing, pegging, controls, or any combination of these and other factors, and respond to changes in domestic, international, political, social, and economic environments. Additionally, due to worldwide economic uncertainty, the availability and cost of funds for production and other expenses have become increasingly difficult, if not impossible, to project. In addition, adverse weather conditions can also hinder drilling operations. These changes and events may materially affect our financial performance. These factors cannot be accurately predicted and the combination of these factors may result in our company not receiving an adequate return on invested capital.
7
Even if we are able to discover and generate a gas well, there can be no assurance the well will become profitable.
We have not yet made a discovery of coalbed methane gas or drilled a gas well to capture any gas. Even if we are able to, a productive well may become uneconomic in the event water or other deleterious substances are encountered which impair or prevent the production of oil and/or gas from the well. In addition, production from any well may be unmarketable if it is impregnated with water or other deleterious substances. In addition, the marketability of oil and gas which may be acquired or discovered will be affected by numerous factors, including the proximity and capacity of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental protection, all of which could result in greater expenses than revenue generated by the well.
Competition in the oil and gas industry is highly competitive and there is no assurance that we will be successful in acquiring the leases.
The oil and gas industry is intensely competitive. We compete with numerous individuals and companies, including many major oil and gas companies, which have substantially greater technical, financial and operational resources and staffs. Accordingly, there is a high degree of competition for desirable oil and gas leases, suitable properties for drilling operations and necessary drilling equipment, as well as for access to funds. We cannot predict if the necessary funds can be raised or that any projected work will be completed. Our budget anticipates our acquisition of additional acreage in the Coos Bay basin. This acreage may not become available or if it is available for leasing, that we may not be successful in acquiring the leases.
The marketability of natural resources will be affected by numerous factors beyond our control which may result in us not receiving an adequate return on invested capital to be profitable or viable.
The marketability of natural resources which may be acquired or discovered by us will be affected by numerous factors beyond our control. These factors include market fluctuations in oil and gas pricing and demand, the proximity and capacity of natural resource markets and processing equipment, governmental regulations, land tenure, land use, regulation concerning the importing and exporting of oil and gas and environmental protection regulations. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in us not receiving an adequate return on invested capital to be profitable or viable.
Oil and gas operations are subject to comprehensive regulation which may cause substantial delays or require capital outlays in excess of those anticipated causing an adverse effect on our company.
Oil and gas operations are subject to federal, state, and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Oil and gas operations are also subject to federal, state, and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Various permits from government bodies are required for drilling operations to be conducted; no assurance can be given that such permits will be received. Environmental standards imposed by federal, provincial, or local authorities may be changed and any such changes may have material adverse effects on our activities. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages. To date we have not been required to spend any material amount on compliance with environmental regulations. However, we may be required to do so in future and this may affect our ability to expand or maintain our operations.
Exploration and production activities are subject to certain environmental regulations which may prevent or delay the commencement or continuance of our operations.
In general, our exploration and production activities are subject to certain federal, state and local laws and regulations relating to environmental quality and pollution control. Such laws and regulations increase the costs of these activities and may prevent or delay the commencement or continuance of a given operation. Compliance with these laws and regulations has not had a material effect on our operations or financial condition to date. Specifically,
8
we are subject to legislation regarding emissions into the environment, water discharges and storage and disposition of hazardous wastes. In addition, legislation has been enacted which requires well and facility sites to be abandoned and reclaimed to the satisfaction of state authorities. However, such laws and regulations are frequently changed and we are unable to predict the ultimate cost of compliance. Generally, environmental requirements do not appear to affect us any differently or to any greater or lesser extent than other companies in the industry. We believe that our operations comply, in all material respects, with all applicable environmental regulations. Our operating partners maintain insurance coverage customary to the industry; however, we are not fully insured against all possible environmental risks.
Exploratory drilling involves many risks and we may become liable for pollution or other liabilities which may have an adverse effect on our financial position.
Drilling operations generally involve a high degree of risk. Hazards such as unusual or unexpected geological formations, power outages, labor disruptions, blow-outs, sour gas leakage, fire, inability to obtain suitable or adequate machinery, equipment or labor, and other risks are involved. We may become subject to liability for pollution or hazards against which it cannot adequately insure or which it may elect not to insure. Incurring any such liability may have a material adverse effect on our financial position and operations.
Risks Relating to Our Series C Convertible Preferred Stock:
There are a large number of shares underlying our Series C Convertible Preferred Stock that may be available for future sale and the sale of these shares may depress the market price of our common stock.
As of August 31, 2005 we had 24,748,293 shares of common stock issued and outstanding and 12,500 Series C Convertible Preferred Stock outstanding. In addition, the number of shares of common stock issuable upon conversion of the outstanding Series C Convertible Preferred Stock may increase if the market price of our stock declines. All of the shares, including all of the shares issuable upon conversion of the Series C Convertible Preferred Stock may be sold without restriction. The sale of these shares may adversely affect the market price of our common stock.
The continuously adjustable conversion price feature of our Series C Convertible Preferred Stock could require us to issue a substantially greater number of shares, which will cause dilution to our existing stockholders.
The number of shares of common stock issuable upon conversion of our Series C Convertible Preferred Stock will increase if the market price of our stock declines, which will cause dilution to our existing stockholders. Our obligation to issue shares upon conversion of our Series C Convertible Preferred Stock is essentially limitless if the trading price per common share declines towards zero as the number of Series C Convertible Preferred Stock convertible into common stock is based on the trading price per common share of our company.
The continuously adjustable conversion price feature of our Series C Convertible Preferred Stock may encourage investors to make short sales in our common stock, which could have a depressive effect on the price of our common stock.
The Series C Convertible Preferred Stock is convertible into common stock at any time by dividing the dollar amount being converted by the lower of $3.00 or 85% of the volume weighted average trading price per common share of our company for five trading days. The holder of the Series C Stock may only convert up to $950,000 of Series C Stock into common shares in any 30 day period; provided, however, that in no event can the holder of the Series C Stock convert more than an aggregate of $750,000 of Series C Stock in any 30 day period at the conversion price of 85% of the volume weighted average trading price per common share for five trading days. Each share of Series C Stock will automatically convert into shares of our common stock at the conversion price then in effect two years from the date of issuance of each share. Our company may redeem the Series C Stock by paying 120% of the invested amount together with any unpaid dividends. The Series C Convertible Preferred Stock is convertible into shares of our common stock at a 20% discount to the trading price of the common stock prior to the conversion. The significant downward pressure on the price of the common stock as the selling stockholder converts and sells material amounts of common stock could encourage short sales by investors. This could place
9
further downward pressure on the price of the common stock. The selling stockholder could sell common stock into the market in anticipation of covering the short sale by converting their securities, which could cause the further downward pressure on the stock price. In addition, not only the sale of shares issued upon conversion of preferred stock, but also the mere perception that these sales could occur, may adversely affect the market price of the common stock.
The issuance of shares upon conversion of the Series C Convertible Preferred stock may cause immediate and substantial dilution to our existing stockholders.
The issuance of shares upon conversion of the Series C Convertible Preferred Stock may result in substantial dilution to the interests of other stockholders since the selling stockholders may ultimately convert and sell the full amount issuable on conversion. There is no upper limit on the number of shares that may be issued which will have the effect of further diluting the proportionate equity interest and voting power of holders of our common stock, including investors in this offering.
In the event that our stock price declines, the shares of common stock allocated for conversion of the Series C Convertible Preferred Stock and registered pursuant to a previous registration statement may not be adequate and we may be required to file a subsequent registration statement covering additional shares. If the shares we have allocated and registered pursuant to the previous registration statement are not adequate and we are required to file an additional registration statement, we may incur substantial costs in connection with such a filing.
The following table sets forth the number and percentage of shares of our common stock that would be issuable if the holders of the Series C Convertible Preferred Stock converted the stock at the stated conversion prices.
|
|
Market Price of Our Common Stock(1) |
|
Conversion Price(2) |
|
Number of Shares Issuable on Conversion of Series C Stock(3) |
|
Percentage of Issued and Outstanding(4) | |||
|
|
-(5) |
|
$3.00(5) |
|
4,166,667 |
|
14.4% | |||
|
|
$3.00 |
|
$2.55 |
|
4,901,961 |
|
16.5% | |||
|
|
$2.75 |
|
$2.34 |
|
5,341,880 |
|
17.8% | |||
|
|
$2.50 |
|
$2.13 |
|
5,868,545 |
|
19.2% | |||
|
|
$2.25 |
|
$1.91 |
|
6,544,503 |
|
20.9% | |||
|
|
$2.00 |
|
$1.70 |
|
7,352,941 |
|
22.9% | |||
|
|
$1.75 |
|
$1.49 |
|
8,389,262 |
|
25.3% | |||
|
|
$1.50 |
|
$1.28 |
|
9,765,625 |
|
28.3% | |||
|
|
$1.25 |
|
$1.06 |
|
11,792,452 |
|
32.3% | |||
|
|
$1.00 |
|
$0.85 |
|
14,705,882 |
|
37.3% | |||
|
|
$0.75 |
|
$0.64 |
|
19,531,250 |
|
44.1% | |||
|
|
$0.50 |
|
$0.43 |
|
29,069,767 |
|
54.0% | |||
|
|
$0.25 |
|
$0.21 |
|
59,523,809 |
|
70.6% | |||
|
(1) |
The volume weighted average trading price per common share of our company for five trading days. |
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(2) |
85% of the volume weighted average trading price per common share for five trading days. |
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(3) The holders of the Series C Stock may only convert up to $950,000 of Series C Stock into common shares in any 30 day period; provided, however, that in no event can the holders of the Series C Stock convert more than an aggregate of $750,000 of Series C Stock in any 30 day period at the conversion price of 85% of the volume weighted average trading price per common share for five trading days. The number of shares issuable on conversion of our Series C Stock set out in the above table assumes that all of the Series C Stock are converted at the same corresponding conversion price.
(4) The percentage of the total outstanding common stock that the shares issuable on conversion of the Series C Stock is based on 24,748,293 shares of common stock outstanding as of August 31, 2005 and is without regard to any contractual or other restriction on the number of securities a particular selling stockholder may own at any point in time.
(5) The Series C Stock is convertible into common stock at any time by dividing the dollar amount being converted by the lower of $3.00 or 85% of the volume weighted average trading price per common share of our company for five trading days. Our company may redeem the Series C Stock by paying 120% of the invested amount together with any unpaid dividends. This prospectus relates to the resale of the common stock.
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Risks Relating to Our Common Stock:
If we fail to remain current in our reporting requirements, we could be removed from the OTC Bulletin Board which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.
Companies trading on the OTC Bulletin Board, such as us, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board. If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.
Our common stock is subject to the "penny stock" rules of the SEC and the trading market in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.
The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
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that a broker or dealer approve a person's account for transactions in penny stocks; and |
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the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. |
In order to approve a person's account for transactions in penny stocks, the broker or dealer must:
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obtain financial information and investment experience objectives of the person; and |
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make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. |
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:
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sets forth the basis on which the broker or dealer made the suitability determination; and |
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that the broker or dealer received a signed, written agreement from the investor prior to the transaction. |
Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
USE OF PROCEEDS
The shares of common stock offered hereby are being registered for the account of the selling stockholder named in this prospectus. As a result, all proceeds from the sales of the common stock will go to the selling stockholder and we will not receive any proceeds from the resale of the common stock by the selling stockholder. We will, however, incur all costs associated with this registration statement and prospectus.
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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted on the OTC Bulletin Board under the symbol "TREN". Prior to July 30, 2004, our common stock was quoted under the symbol "SBSY." Prior to March 24, 2003, our common stock was quoted under the symbol "IRVV."
For the periods indicated, the following table sets forth the high and low bid prices per share of common stock. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.
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High |
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Low |
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2004 |
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First Quarter(1) |
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$ 0.20 |
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$ 0.10 |
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Second Quarter |
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0.20 |
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0.10 |
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Third Quarter |
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0.20 |
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0.10 |
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Fourth Quarter |
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0.51 |
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0.05 |
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2005 |
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First Quarter |
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$ 1.29 |
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$ 0.38 |
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Second Quarter |
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1.18 |
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0.65 |
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Third Quarter |
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1.37 |
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0.72 |
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Fourth Quarter |
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1.36 |
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0.93 |
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2006 |
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First Quarter |
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$ 3.56 |
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$ 0.95 |
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(1) All prices per share before January 20, 2004 take into account the one-for-ten share consolidation, which has the effect of multiplying the pre-consolidated price per share by a factor of ten. | ||||
Holders
As of August 31, 2005, we had approximately 172 registered holders of our common stock. The number of holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. The transfer agent of our common stock is Computershare Trust Company, Inc., 350 Indiana Street, Suite 800, Golden, CO 80401.
Dividends
We have never declared or paid any cash dividends on our common stock. As of June 30, 2005, we had accrued dividends of $72,672 on the Series B Convertible Preferred Stock. We do not anticipate paying any cash dividends to stockholders in the foreseeable future. In addition, any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, and such other factors as the Board of Directors deem relevant.
2005 Equity Incentive Plan
On March 17, 2005, the Company adopted the 2005 equity incentive plan (the "2005 Plan") for executives, employees and outside consultants and advisors. A maximum of 2,500,000 shares of our common stock are subject to the 2005 Plan. During the quarter ended June 30, 2005, we granted 1,700,000 stock options to various directors and consultants of our company under the 2005 Plan. Each option entitles the holder to acquire one common share at exercise prices ranging from $1.25 to $2.00 per share. These options vest 25% immediately and 25% every six
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months afterward until fully vested 18 months from the date of grant. These options expire five years from the date of grant. On August 31, 2005, an S-8 was filed to register this plan.
2004 Non-Qualified Stock Option Plan
In February 2004, the Board of Directors authorized the 2004 Non-Qualified Stock Option Plan (the "Plan") for our executive, employees and outside consultants and advisors. Under the Plan, executives, employees and outside consultants and advisors may receive awards of non-qualified stock options. A maximum of 1,800,000 shares of our common stock are subject to the Plan. As at August 31, 2005, 1,600,000 options were issued and exercised and 200,000 options remain outstanding of which 150,000 options are exercisable. Each outstanding option entitles the holder to acquire one common share at an exercise price of $0.50 per share. Vesting provisions for these options are 25% immediately and 25% every six months afterward until fully vested on December 31, 2005. These options expire on August 3, 2009 and have been registered pursuant to an S-8 filing. There are no additional shares available to be granted under the 2004 Plan.
During the fiscal year ended March 31, 2005, 600,000 stock options were granted outside the 2004 Plan of which 200,000 stock options with an exercise price of $1.00 per share and another 200,000 with an exercise price of $2.00 per share were granted pursuant to a Mail Distribution Agreement with a third party. These options vested immediately and were exercisable until November 1, 2005. These options had a cashless exercise provision whereby the optionee could elect to receive common stock in lieu of paying cash for the options based on a formula that includes using the average closing prices of the five trading days preceding the exercise date. During the quarter ended June 30, 2005, the optionee elected to invoke the cashless exercise provision for the exercise of 200,000 options resulting in 89,502 common shares being issued and the other 200,000 stock options being cancelled. The cancellation of the 200,000 options, due to non-performance under the original agreement, resulted in the reversal of $99,641 which had previously been recorded to additional paid-in capital and investor relations expense. The other 200,000 stock options granted outside the 2004 Plan were to a consultant of our company for public and investor relations services. These options have an exercise price of $0.83 per share, vested 25% immediately, and 25% every quarter thereafter. These 200,000 options were later brought in and were registered under the 2005 Plan. As at August 31, 2005, 200,000 of these options are exercisable. Either party may terminate the investor relations agreement with thirty days written notice.
Option/SAR Grants in the Last Fiscal Year
The following table sets forth certain information concerning the granting of incentive stock options during the last completed fiscal year to each of the named executive officers and the terms of such options.
Individual Grants
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Number of Securities Underlying Options/SARs Granted (#) |
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% of Total Options/SARs Granted to Employees in Fiscal Year |
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Exercise or Base Price ($/Share) |
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Expiration Date |
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Thomas E. Mills |
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- |
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- |
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Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End Option/SAR Values
The following table sets forth certain information concerning the exercise of incentive stock options during the last completed fiscal year by each of the named executive officers and the fiscal year-end value of unexercised options on an aggregated basis.
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Name |
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Shares Acquired on Exercise (#) |
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Value Realized(1) ($) |
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Number of Unexercised Options/SAR at FY-End(#) Exercisable/ |
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Value of Unexercised In-the-Money Options/SARs at FY-End($)(2) Exercisable/ |
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Thomas E. Mills |
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(1) |
Value realized is determined by calculating the difference between the aggregate exercise price of the options and the aggregate fair market value of the common stock on the date the options are exercised. |
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The value of unexercised options is determined by calculating the difference between the fair market value of the securities underlying the options at fiscal year end and the exercise price of the options. |
PLAN OF OPERATIONS
Some of the information in this document contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as "may," "will," "expect," "anticipate," "believe," "estimate" and "continue," or similar words. You should read statements that contain these words carefully because they:
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discuss our future expectations; |
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contain projections of our future results of operations or of our financial condition; and |
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state other "forward-looking" information. |
We believe it is important to communicate our expectations. However, there may be events in the future that we are not able to accurately predict or over which we have no control. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors," "Business" and elsewhere in this prospectus. See "Risk Factors."
Overview
Until June 22, 2004, when we closed on the purchase of certain oil and gas leases in the Coos Bay region, our business was to provide services to the e-commerce industry. Historically, these services have been comprised of marketing, e-commerce development and the sale and distribution of transaction processing and payment services. Since none of these services were sufficient to provide us with a sustainable foundation, we commenced reviewing opportunities in the resource sector in late fiscal 2004. Accordingly, the accumulated losses of $883,317 to March 31, 2004 reflect our past activities that have been either discontinued or abandoned. In addition, the results of operations discussed herein reflect our previous operations and not the financial results of our new business model.
Our restructuring accelerated in the final quarter of fiscal 2004 (January 1 to March 31, 2004) and was finalized in the first quarter of fiscal 2005 (April 1 to June 30, 2004). We decided to investigate and pursue a number of conventional oil and gas opportunities as well as a number of unconventional (coalbed methane) acquisition candidates. Due diligence on a coalbed methane opportunity was completed in April and May of 2004, resulting in the May 20, 2004 announcement of the purchase of certain Oregon-based oil and gas lease assets from an independent company. Two private placements in the first quarter of fiscal 2005 (April 1 to June 30, 2004) allowed us to complete the lease acquisitions and to commence leasing additional mineral rights under the land surrounding the existing oil and gas leases. We now have a coalbed methane exploration prospect in Oregon to focus on. An additional private placement in the second quarter of fiscal 2005 (July 1 to September 30, 2004) allowed us to complete lease acquisitions, core drilling, marketing and public relations, working capital needs and pay legal and professional fees. Additional financings may be required to support further leasing activities and related exploratory drilling programs.
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Plan of Operations
Land Acquisition
We currently lease approximately 101,000 acres in the Coos Bay Basin. Our objective to acquire a land lease position of approximately 80,000 to 90,000 acres before the end of 2005 was reached in November, 2005 when our wholly-owned operating subsidiary, Methane Energy Corp., secured additional acres falling within the key portions of the Coos Bay basin area to bring the total area leased to approximately 101,000 acres.
Exploration of the Coos Bay Project
We are planning an aggressive drilling and exploration program in the Coos Bay Basin. Based on existing raw data, which provides substantial subsurface information. We have begun a core drilling program. A total of five core holes have been drilled at depths ranging from 1,000 to 4,500 feet. Since gas content levels have met management's expectations, we are proceeding with a full pilot test well program in 2005.
Estimated Timeline Over the Next Twelve Months
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August to December 2005 |
Commence pilot well drilling and testing. |
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January 2006 to July 2006 |
Continue pilot well testing (primarily a dewatering phase). |
During the quarter ended June 30, 2005, we received a permit from the Oregon Department of Geology and Mineral Industries) to complete and test the Beaver Hill # 1 well and a completion rig moved onto the Beaver Hill # 1 location which will perforate and swab the Lower Coaledo Formation “D” coal seam (approximately 4,200 feet) to test for inflow of water and natural gas from this coal seam. The purpose of the test is to gather representative water and gas samples from the coal seam and to measure the vo