-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QMEujUx92fCNiyGXH3dob2yVyib9FqzGiVCIwmuIIAnSDeuvhgw914eF9K2JmENi XXd9HwgvsCIuM1r8gE2RwA== 0000889812-00-002346.txt : 20000517 0000889812-00-002346.hdr.sgml : 20000517 ACCESSION NUMBER: 0000889812-00-002346 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TENGASCO INC CENTRAL INDEX KEY: 0001001614 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 870267438 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-15555 FILM NUMBER: 636673 BUSINESS ADDRESS: STREET 1: 603 MAIN AVE STREET 2: SUITE 500 CITY: KNOXVILLE STATE: TN ZIP: 37902 BUSINESS PHONE: 4235231124 MAIL ADDRESS: STREET 1: 630 MAIN AVENUE STREET 2: SUITE 500 CITY: KNOXVILLE STATE: TN ZIP: 37902 10QSB 1 QUARTERLY REPORT U.S. Securities and Exchange Commission Washington, D.C. 20549 Form 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended March 31, 2000 Commission File No. 0-20975 Tengasco, Inc. (Exact name of small business issuer as specified in its charter) Tennessee 87-0267438 ------------------------------- ------------------------------- State or other jurisdiction of IRS Employer Identification No.) incorporation or organization 603 Main Avenue, Suite 500, Knoxville, TN 37902 (Address of principal executive offices) (423) 523-1124 (Issuer's telephone number, including area code) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 8,613,352 common shares at March 31, 2000. Transitional Small Business Disclosure Format (check one): Yes No X -- -- TENGASCO, INC. TABLE OF CONTENTS PAGE ---- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS * Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999............................................ 3-4 * Consolidated Statements of Loss for the three months ended March 31, 2000 and 1999......................... 5 * Consolidated Statements of Stockholders Equity for the three months ended March 31, 2000........................... 6 * Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and 1999................................ 7 * Notes to Consolidated Financial Statements................... 8-9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................................... 10-13 PART II. OTHER INFORMATION * Signature.............................................. 14 2 TENGASCO, INC. CONSOLIDATED BALANCE SHEETS ASSETS
March 31, 2000 December 31, 1999 (Unaudited) (Audited) -------------------- ------------------ C> Current Assets: Cash and cash equivalents $ 685,490 $ 420,590 Accounts receivable 531,326 533,983 Other current assets 259,753 259,753 -------------------- ------------------- Total current assets 1,476,569 1,214,326 Oil and gas properties, net (on the basis of full cost accounting) 8,843,882 8,444,036 Pipeline facilities, at cost 4,245,080 4,212,842 Property and equipment, net 680,788 574,895 Restricted cash 0 625,000 Other 112,613 111,613 -------------------- -------------------- $ 15,358,932 $ 15,182,712 ===================== ====================
See accompanying notes to consolidated financial statements 3 TENGASCO, INC. CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, 2000 December 31, 1999 (Unaudited) (Audited) -------------------- ------------------ Current liabilities Notes payable $ 0 $ 750,000 Current maturities of long-term debt 1,159,090 1,025,085 Accounts payable-trade 482,433 651,909 Accrued liabilities 133,420 193,595 -------------------- ------------------ Total current liabilities 1,774,943 2,620,589 Long term debt, less current maturities 2,755,390 3,119,293 -------------------- -------------------- Total liabilities 4,530,333 5,739,882 -------------------- -------------------- Preferred Stock Convertible redeemable preferred; redemption value $2,988,900; 29,889 shares outstanding Stockholder's equity 2,988,900 1,988,900 -------------------- -------------------- Common stock, $.001 per value, 50,000,000 shares authorized 8,613 8,533 Additional paid-in capital 21,228,679 20,732,759 Accumulated deficit (13,397,593) (13,287,362) -------------------- -------------------- 7,839,699 7,453,930 -------------------- -------------------- Total stockholders' equity 7,839,699 7,453,930 -------------------- -------------------- $ 15,358,932 $ 15,182,712 ==================== ====================
See accompanying notes to consolidated financial statements 4 TENGASCO, INC. CONSOLIDATED STATEMENTS OF LOSS
For the Three For the Three Months Ended Months Ended March 31, 2000 March 31, 1999 (Unaudited) (Unaudited) ------------------ ----------------- Oil and gas revenues $ 1,179,912 $ 295,648 ------------------ ----------------- Costs and other deductions Production costs and taxes 455,825 237,101 Depletion, depreciation and amortization 63,000 27,100 Interest expense 98,933 44,209 General and administrative costs 565,830 747,050 Legal and accounting 66,777 183,451 ------------------ ----------------- Total costs and other deductions 1,250,365 1,238,911 ------------------ ----------------- Net loss $ (70,453) $ (943,263) ------------------ ----------------- Basic and diluted loss per common share $ (0.$1) $ (0.12) ================== =================
See accompanying notes to consolidated financial statements 5 TENGASCO, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Common Stock Additional ---------------------------- Paid In Accumulated Shares Amount Capital Deficit ----------- ----------- ----------- -------------- Balance December 31, 1999 $ 8,532,882 $ 8,533 $20,732,759 $ (13,287,362) Common stock issued in 80,470 80 495,920 0 private placements Payment of dividends on convertible preferred stock 0 0 0 (39,778) Net loss for the three months ended March 31, 2000 0 0 0 (70,453) ----------- ----------- ----------- -------------- Balance, March 31, 2000 $ 8,613,352 $ 8,613 $21,228,679 $(13,397,593) ============= =========== =========== ==============
See accompanying notes to condensed consolidated financial statements 6 TENGASCO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three For the Three Months Ended Months Ended March 31, 2000 March 31, 1999 (Unaudited) (Unaudited) --------------------- ------------------ Operating activities Net loss $ (70,453) $ (943,263) Adjustments to reconcile net loss to net cash used in operating activities: Depletion, depreciation and amortization 63,000 27,100 Changes in assets and liabilities Accounts receivable 2,657 41,312 Other assets (1,000) (1,000) Accounts payable (169,476) 51,514 Accrued liabilities (60,175) (73,394) --------------------- ------------------ Net cash used in operating activities (235,447) (897,731) --------------------- ------------------ Investing activities Changes to property and equipment (143,893) 19,859 Changes to oil and gas properties (424,846) (361,021) Changes to pipeline facilities (32,238) (33,543) Decrease in restricted cash 625,000 0 --------------------- ------------------ Net cash provided by investing activities 24,023 (374,705) --------------------- ------------------ Financing activities Proceeds from borrowings 0 400,000 Repayments of borrowings (979,898) (379,059) Proceeds from issuance of stock 0 490,348 Dividends on convertible redeemable preferred stock (39,778) 0 Proceeds from private placements of common stock 496,000 0 Proceeds from Private Placement of preferred stock 1,000,000 0 --------------------- ------------------ Net cash provided by financing activities 476,324 511,289 --------------------- ------------------ Net change in cash and cash equivalents 264,900 (761,147) Cash and cash equivalents, beginning of period 420,590 913,194 --------------------- ------------------ Cash and cash equivalents, end of period $ 685,490 $ 152,047 ===================== ==================
See accompanying notes to consolidated financial statements 7 Tengasco, Inc. Notes to Consolidated Financial Statements 1. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310 (b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2000 are not necessarily indicative of the results that may be expected for the year ended December 31, 2000. For further information, refer to the company's consolidated financial statements and footnotes thereto for the year ended December 31, 1999, included in Form 10-KSB. 2. The Company has issued fully paid 25% working interests in six wells in the Swan Creek Field to Shigemi Morita, one of the Directors of the Company, which were paid for in part by crediting Mr. Morita $360,000 for placement fees in connection with private placements of the Company's common stock which occurred during the fourth quarter of 1997 and the first quarter of 1998. Mr. Morita was given an option that if it was determined that a well (s) at the time of completion of the drilling was not economically feasible and as such was subsequently plugged and abandoned, he had 30 days, after written notice from the Company, to convert amounts paid for that well (s) to restricted shares of the Company's common stock at 70% of its then current market value. However, all six of the wells in which Mr. Morita has a participation interest are producing, therefore his options for these wells were not exercisable. In December, 1999, Morita Properties, Inc., an affiliate of Mr. Morita, purchased for the sum of $625,000 a 25% working interest on a turnkey basis in two wells, Laura Jean Lawson #1 and Stephen Lawson #2, both of which are in the Swan Creek Field, and a 50% working interest in a third well, Springdale Land Company #1, which is a wildcat step-out well located approximately ten miles from the existing production. In January and March 2000, Morita Properties, Inc. purchased for the sum of $250,000 on a turnkey basis a 12.5% working interest in the Stephen Lawson #3 well, a 25% working interest in the Laura Jean Lawson #2 well, and in April 2000, Morita Properties, Inc. purchased for the sum of $125,000 a 25% working interest in the R.D. Helton #2 well, all of which are in the Swan Creek Field. The purchases of these interests were concluded before the respective wells were drilled and the purchaser assumed all the attendent risks involved in normal and customary drilling operations, including the risk of a dry hole. The Company received fair market value for the interests conveyed and the sale of such interests was required to raise funds to allow drilling operations to continue. 8 3. On December 18, 1997, the Company entered into an asset purchase agreement in which certain producing oil and gas properties and inventory located in the state of Kansas ("the Kansas Properties") were acquired from AFG Energy, Inc. ("AFG"). The agreement, which was effective as of December 31, 1997, closed on March 5, 1998, whereby the Company paid $2,990,253 in cash and entered into a note payable agreement with AFG in the amount of $2,500,000. The note accrued interest at the rate of 9.5% per annum for the period December 1998 to May 1999. After May 1999, the interest rate became 9.0% per annum. There was a balloon payment of $1,865,078 due in January 2000. The seller financing portion of the purchase price has been refinanced by Arvest United Bank of Edmond, Oklahoma as evidenced by a note dated November 23, 1999 in the amount of $1,883,650 to be paid in monthly installments of principle and interest over a three year period. The acquisition has been accounted for as a purchase and, accordingly, the purchase price of $5,490,253 has been allocated to the assets acquired based on the estimated fair values at the date of acquisition. 4. In accordance with SFAS No. 128, "Earnings Per Share", basic and diluted loss per share are based on 8,722,892 weighted average shares outstanding for the quarter ended March 31, 2000 and 7,684,512 weighted average shares outstanding for the quarter ended March 31, 1999. There were 475,827 and 475,827 potential weighted common shares outstanding at March 31, 2000 and March 31, 1999, respectively, related to common stock options and warrants. These shares were not included in the computation of the diluted loss per share amount because the Company was in a net loss position and, thus, any potential common shares were anti-dilutive. 5. Financial Accounting Standards Board Statement of Financial Accounting Standards No. 133, " Accounting for Derivatives and Hedging Activities", as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. Historically, the Company has not entered into derivative contracts either to hedge existing risks or for speculative purposes. Accordingly, the Company does not expect adoption of this new standard on January 1, 2001, to affect its financial statements. 9 Tengasco, Inc. Management's Discussion and Analysis Of Financial Condition and Results of Operations The Company is in the business of exploring for, producing and transporting oil and natural gas in Tennessee and Kansas and marketing gas for others in Tennessee. The Company has 208 producing oil and gas wells in Kansas and has 16 producing natural gas and four oil wells in Tennessee. The Company intends to continue its drilling program on the Swan Creek leases. The existence of substantial deposits of hydrocarbons (oil and/or gas) in the Swan Creek structure (i.e. the rock formation beneath the surface) is confirmed by the following facts: (1) The Swan Creek structure is located in an area known as the Eastern Overthrust Belt which is an area with numerous faults. A fault is an area where geologic plates overlap. The Eastern Overthrust Belt is geologically similar to the Western Overthrust Belt located in the Rocky Mountains, where there are other oil and gas producing properties. (2) The Company has successfully completed fifteen gas wells in this area, all of which have been flow tested by metering gas from the wells through a one-half inch orifice. These tests all verify the presence of a substantial reservoir of natural gas and/or oil. One of these wells, the Reed # 1 tested at 4,800,000 cubic feet of gas per day with a pressure of 800 psi. Another well, the Sutton # 1 tested at 1,200,000 cubic feet per day with a pressure of 150 psi. To date, the Company has not drilled any dry wells. In July 1998, the Company completed Phase I of its 8 inch 23 mile pipeline from the Swan Creek Field to Rogersville, Tennessee. With the assistance of the Tennessee Valley Authority, the Company was successful in utilizing TVA's rights-of-way along its main power grid from the Swan Creek Field to Rogersville, Tennessee. The Company's plan of operations for the next two years calls for the drilling of 50 additional wells on the Swan Creek Field at a cost of approximately $250,000 per well. Drilling operations are contingent upon funds becoming available either as a result of gas sales upon completion of the second phase of the company's pipeline ("Phase II") or from other sources. The Company is currently engineering and designing Phase II of its pipeline, an additional 28 miles of 12 inch pipeline, at a cost of approximately $6,000,000 which will extend from a point near the terminus of the Company's existing pipeline and connect to an existing pipeline and meter station at the chemical plant of Eastman Chemical Company ("Eastman") in Kingsport, Tennessee. The Company recently entered into an agreement with Eastman to supply 10 substantial amounts of natural gas to Eastman. The Tennessee Department of Transportation has granted the Company the right to lay Phase II of its pipeline along State Highway 11 to Kingsport, Tennessee. At the present time, the Company is capable of producing substantially more gas than it is able to sale. Completion of Phase II of the pipeline will allow the Company to deliver its gas to Eastman and sell substantially more of its natural gas production from the Swan Creek Field. The Company estimates that its ultimate deliverability will reach 80 to 100 Mmcf per day or 2.5 to 3.1 Bcf per month once Phase II of its pipeline is completed. The Company expects to reach this capacity on or about December 31, 2002. The estimated time from start to finish of construction of Phase II of the Pipeline is six to eight months. The Company anticipates that its agreement with Eastman will require Eastman to purchase 10,000 MMBTU of gas per day, to take effect upon completion of Phase II of its pipeline. The Company does not presently have the funds needed to enable it to complete its drilling program and the extension of the pipeline. The Company is attempting to raise those funds through a private placement offering (the "Offering") of a minimum of 30,000 and a maximum of 100,000 shares of Series B Cumulative Convertible Preferred Stock (the "Series B Shares") at a purchase price of $100 per share pursuant to Rule 506 of Regulation D promulgated by the Securities and Exchange Commission. The Series B Shares are being offered through Southcoast Capital L.L.P. ("Southcoast Capital") pursuant to a written agreement with the Company on a "best efforts basis." Southcoast Capital will receive selling commissions of eight percent (8%) of the price of the Series B Shares. In addition, the Company will issue to Southcoast Capital a warrant (the "Warrant") to purchase a number of shares of the Company's stock equal to ten percent (10%) of the total number of shares of the Company's common stock into which the total number of Series B Shares sold pursuant to the Offering are convertible. The warrant will be for a term of five years and the price of shares of common stock for a period of thirty (30) business days immediately preceding a closing of any sale of securities offered pursuant to the Offering, but in no event less than $9.00 per share. The Company will also reimburse Southcoast Capital for its expenses in connection with the Offering, including the fees and expenses of its legal counsel, provided that, without the prior agreement of the Company, the aggregate of such expenses shall not exceed $15,000. The Company intends to use the proceeds from the Offering of the Series B Shares to finance construction of Phase II of the pipeline. However, there can be no assurance that the Company will be able to sell the Series B Shares, or if it does not sell more than the minimum amount of the Offering, that the proceeds from the Offering will be sufficient to complete the pipeline. If these funds are not sufficient, the Company will seek additional financing by other means. Although there can be no assurances that such financing will be available, the Company believes that it will be able to procure such financing by means of a bank loan, equity investment or a joint venture with another company. In connection with its acquisition of all of AFG's assets, the Company acquired 208 working wells in Kansas. Pursuant to the acquisition agreement the Company was entitled 11 to all income from those wells as of January 1, 1998. The acquisition was for a total purchase price of approximately $5.5 million. The aggregate current production from the Kansas properties is approximately 1.0 million cubic feet of natural gas and 400 barrels of oil per day. Income from the Kansas properties at the present time is approximately $300,000 per month. Revenues from the Kansas Properties for the first quarter of 2000 continued to increase due to the significant increase in oil prices during the quarter. There are several capital projects that are available in Kansas which include drilling wells, recompletion of wells and major workovers to increase current production. These projects when completed may well increase production in Kansas. However, the cost of major reworking of certain existing wells is projected to be $ 1.4 million. Since the Company does not presently, have the funds necessary for major reworking of existing wells and/or for drilling additional wells, the ability to undertake such efforts is dependent on the Company obtaining additional debt or equity financing. Management has made the decision not to undertake such efforts to raise the funds necessary to perform this work at the present time. The Company has determined not to pursue the development of the Beech Creek, Fentress County, Wildcat, Burning Springs and Alabama Leases, all of which have expired. The Company instead will concentrate on the development of its other properties which management believes have greater economic potential and the acquisition of other properties. The Company has no plans, at present, to increase the number of its employees significantly. This plan of operation is based upon many variables and estimates, all of which may change or prove to be other than or different from information relied upon. 12 Results of Operations The company recognized $1,179,912 in revenues from the Kansas oil and gas field and Swan Creek during the first quarter of 2000 compared to $295,648 in the first quarter of 1999. This increased revenue resulted from the significant increase in oil prices during the first quarter of 2000. Oil prices in the first quarter of 1999 were approximately $9.00 per barrel whereas prices in 2000 were approximately $26.50 per barrel. Also oil production from Swan Creek increased from 3,566 barrels in the first quarter of 1999 to 11,294 in 2000. Production Costs and Taxes for the first three months of 2000 of $455,825, was higher compared to $237,101 in the first quarter of 1999. This was due to some well work overs in Kansas in order to increase production. Depreciation, Depletion and Amortization expense for the first three months of 2000 was $63,000, compared to $27,100 for the first three months of 1999, this difference was due to depreciation on additional equipment purchased during 1999. Interest Expense for the first three months of 2000 was $98,933, as compared to $44,209 in 1999. This difference is due to interest paid on the Wallington and Thieme Fonds settlements. General and Administrative Expenses for the first three months of 2000 decreased, $181,220 from the first three months of 1999 amount of $747,050. This decrease was due to cost saving measures by management. Legal and accounting fees decreased $116,674 for the first three months of 2000. The majority of this decrease was in legal services as several legal matters were settled in 1999. Year 2000 Risks The Company achieved Year 2000 compliance for all internal systems and did not suffer any adverse effects with respect thereto. The Company does not anticipate any such problems in the future. The Company's Year 2000 compliance costs were insignificant and, accordingly, did not have a material effect on its operating results or financial position. 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereto duly authorized. Dated: May 12, 2000 TENGASCO, INC. By: /s/ Terry W. Piesker ------------------------------------ Terry W. Piesker, President By: /s/ Mark A. Ruth ------------------------------------- Mark A. Ruth, Chief Financial Officer 14 -----END PRIVACY-ENHANCED MESSAGE-----