-----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, DjZTiwMXUO7FaNzXhCHn287HcASh+sqf9EzA2NTx3+3tMWpg/lfSWVvtyyYHqn5E nyh6p0zxmYv0L6jSDw5C9A== 0000889812-99-001541.txt : 19990518 0000889812-99-001541.hdr.sgml : 19990518 ACCESSION NUMBER: 0000889812-99-001541 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: 000-29386 FILM NUMBER: 99625773 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, 1999 -------------- 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: 7,797,328 common shares at March 31, ------------------------------------ 1999. - ----- 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, 1999 and December 31, 1998.......................................... 3 * Consolidated Statements of Loss for the three months ended March 31, 1999 and 1998.............................. 5 * Consolidated Statements of Stockholders Equity for the three months ended March 31, 1999.......................... 6 * Consolidated Statements of Cash Flows for the three months ended March 30, 1999 and 1998.............................. 7 * Notes to Consolidated Financial Statements................. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................. 10 PART II. OTHER INFORMATION * Signature.................................................. 13 2 TENGASCO, INC. CONSOLIDATED BALANCE SHEETS ASSETS
March 31, 1999 December 31, 1998 (Unaudited) (Audited) -------------- ----------------- Current Assets: Cash and cash equivalents $ 152,047 $ 913,194 Accounts Receivable 105,738 147,050 Other current assets 100,298 100,298 -------------- ----------------- Total Current Assets 358,083 1,160,542 Oil and gas properties, net (on the basis of full cost accounting) 8,108,676 7,747,655 Pipeline facilities, at cost 4,052,752 4,019,209 Property and equipment, net 414,050 461,009 Other 138,362 137,362 -------------- ----------------- $ 13,071,923 $ 13,525,777 ============== =================
See accompanying notes to consolidated financial statements 3 TENGASCO, INC. CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, 1999 December 31, 1998 (Unaudited) (Audited) -------------- ----------------- Current Liabilities Notes payable $ 750,000 $ 1,000,000 Loans payable to affiliates 413,800 413,800 Due to AFG Energy, Inc. (Note 3) 859,833 953,895 Current maturities of long-term debt 54,138 89,135 Accounts payable-trade 403,081 351,567 Accrued liabilities 207,966 281,360 -------------- ----------------- Total current liabilities 2,688,818 3,089,757 Due to AFG Energy, Inc. (Note 3) 976,207 976,207 Long term debt, less current maturities 2,214,723 2,214,723 -------------- ----------------- Total liabilities 5,879,748 6,280,687 -------------- ----------------- Stockholders' equity Convertible redeemable preferred; redemption value $800,000; 8,000 shares outstanding 800,000 800,000 Common stock, $.001 per value, 50,000,000 shares authorized 7,788 7,644 Common stock to be issued 700,000 700,000 Additional paid-in capital 17,286,242 16,796,038 Unamortized stock award (162,500) (162,500) Accumulated Deficit (11,439,355) (10,496,092) -------------- ----------------- 7,192,175 7,645,090 Due from stockholder 0 (400,000) -------------- ----------------- Total stockholders' equity 7,192,175 7,245,090 -------------- ----------------- $ 13,071,923 $ 13,525,777 ============== =================
See accompanying notes to consolidated financial statements 4 TENGASCO, INC. CONSOLIDATED STATEMENTS OF LOSS (UNAUDITED)
For the Three For the Three Months Ended Months Ended March 31, 1999 March 31, 1998 (Unaudited) (Unaudited) ---------------------- --------------------- Oil and gas revenues $ 295,648 $ 610,509 Costs and other deductions Production Costs and Taxes 237,101 265,487 Depletion, depreciation and amortization 27,100 122,714 Interest expense 44,209 72,716 General and administrative costs 747,050 225,574 Legal and Accounting 183,451 0 Realized loss on sale of investments 0 14,828 ---------------------- -------------------- Total costs and other deductions 1,238,911 701,319 ---------------------- -------------------- Net loss $ (943,263) $ (90,810) - -------------------------------------------------- ---------------------- -------------------- BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.12) $ (0.01) - -------------------------------------------------- ====================== ====================
See accompanying notes to consolidated financial statements 5 TENGASCO, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Convertible Unamortized Redeemable Common Stock Common Additional Stock Preferred ------------ Stock Paid In Option Accumulated Stock Shares Amount Issuable Capital Awards Deficit ----------- ---------- ---------- --------- ------------ ------------- ------------- Balance, December 31, 1998 $ 800,000 7,644,212 $ 7,644 $ 700,000 $ 16,796,038 $ (162,500) $ (10,496,092) Common stock issued in private placements 153,116 144 490,204 0 0 Amortization of stock option awards 0 0 0 0 0 Common stock options granted to non employees 0 Placement fees paid in well working interests 0 Net loss for the three months ended March 31, 1999 0 0 0 0 0 0 (943,263) ----------- ---------- ---------- --------- ------------ ------------- ------------- Balance, March 31, 1999 $ 800,000 7,797,328 $ 7,788 $ 700,000 $ 17,286,242 $ (162,500) $ (11,439,355) =========== ========== ========== ========= ============ ============= =============
See accompanying notes to condensed consolidated financial statements 6 TENGASCO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31 1999 1998 -------------- ----------------- Operating activities Net loss $ (943,263) $ ( 90,810) Adjustments to reconcile net loss to net cash used in operating activities: Depletion, depreciation and amortization 27,100 122,714 Compensation paid in stock options 0 45,921 Changes in assets and liabilities Accounts receivable 41,312 (226,870) Other current assets (1,000) 60,410 Accounts payable 51,514 ( 1,888) Accrued liabilities (73,394) 39,560 -------------- ----------------- Net cash used in operating activities (897,731) (50,963) Investing activities Changes to property and equipment 19,859 (40,819) Changes to oil and gas properties (361,021) (397,795) Changes to pipeline facilities ( 33,543) (1,081,946) Net cash used in investing activities (374,705) (1,520,560) Financing activities Proceeds from borrowings 400,000 35,485 Repayments of borrowings (379,059) (3,506,357) Proceeds from issuance of common stock 490,348 973,562 Proceeds from sale of oil and gas properties 0 80,000 -------------- ----------------- Net cash provided by financing activities 511,289 (2,417,310) -------------- ----------------- Net decrease in cash and cash equivalents (761,147) (3,988,833) Cash and cash equivalents, beginning of period 913,194 4,451,274 Cash and cash equivalents, end of period $ 152,047 $ 462,441 ============== =================
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, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. For further information, refer to the company's consolidated financial statements and footnotes thereto for the year ended December 31, 1998, 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 are not exercisable. 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 will accrue interest at 9.5% per annum for the period December 1998 to May 1999. After May 1999, the interest rate becomes 9.0% per annum. Monthly interest-only payments are due from December 1998 to May 1999. Monthly installments of principal and interest of $138,349 are due from June 1999 to December 1999. There is a balloon payment of $983,773 due in January 2000. 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. 8 4. In accordance with ("SFAS") No. 128, "Earnings Per Share", basic and diluted loss per share are based on 7,684,512 weighted average shares outstanding for the quarter ended March 31, 1999 and 7,181,062 weighted average shares outstanding for the quarter ended March 31, 1998. There were 475,827 and 497,969 potential weighted common shares outstanding at March 31, 1999 and March 31,1998 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. SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" is effective for all fiscal years beginning after June 15, 1999. This statement requires recognition of all derivative contracts as either assets or liabilities in the balance sheet and the measurement of them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of any gains or losses on the hedge with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. It is not anticipated that this pronouncement will have any impact on the Company since the Company does not have any open derivative contracts and it does not enter into any hedging transactions. 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 thirteen producing natural gas and three oil wells in Tennessee. Liquidity and Capital Resources The Company's primary cash requirements are for capital expenditures and operating expenses. The primary source of cash prior to the first quarter of 1999 has been from loan transactions, private placements of the Company's common stock and revenues from its Kansas Properties. Investing activities for the first three months of 1999 include additions of $361,021 to oil and gas properties and $33,543 for completion of the first phase of the Company's pipeline in Tennessee which has been under construction since 1996. The costs for oil and gas properties were primarily for drilling and completion of natural gas and oil wells in the Swan Creek Field in northeastern Tennessee. Cash and cash equivalents at March 31, 1999 decreased $761,147 from the December 31, 1998 balance of $913,194 due primarily to the following: o Costs noted above for oil and gas properties and the pipeline completion totaled $394,564. o Net cash used in Operating Activities was $897,731 which is shown in detail on the Statement of Cash Flows. Proceeds from private placements of 153,116 shares of the Company's common stock totaled $490,348 during the first three months of 1999. 10 On July 16, 1998, the Company entered into a loan agreement with five individual investors totaling $800,000. The loans were secured by a pledge of 118,200 shares of the Company's Common Stock owned by Malcolm E. Ratliff, the Company's Chief Executive Officer and a Director. The loan bore interest at 8% per annum and matured on October 14, 1998. Loan origination fees consisted of $64,000 in cash to the broker who arranged the loan and 16,800 shares of the Company's common stock advanced to the lenders and broker on behalf of the Company by Malcolm E. Ratliff. Approximately $520,000 of this loan was repaid by the Company out of proceeds received by the Company in October 1998 from a Convertible Note it issued in the amount of $1,500,000. The Convertible Note matures in five years and is convertible into shares of the Company's common stock at a price of $6.25 per share. In connection with the loan proceeds received by the Company evidenced by the Convertible Note, the Company issued 25,000 shares of its common stock to the lender as a loan fee. The balance of the $800,000 loans were satisfied by the issuance to the lenders of 2,800 shares of Series A 8% Cumulative Convertible Preferred Stock convertible at a price of $5.75 per share. The Company's plan of operations for the next twelve months call for drilling two wells per month in the Swan Creek Field in Tennessee at a cost of $250,000 per well. The Company also plans to complete phase two of its pipeline to extend its recently completed pipeline in Tennessee 30 miles at a cost of $5,000,000 to connect with the main gas transmission line of East Tennessee Natural Gas. This will allow the Company to sell natural gas throughout the southeastern and northeastern United States. The Company does not presently have the funds needed to enable it to complete its drilling program and the extension of the pipeline. There can be no assurances when or if the funding necessary for the continuation of the drilling program and the completion of the second phase of the pipeline will become available. Moreover, no assurance can be given that the Company will be able to obtain the required rights of way to construct the second phase of its pipeline, and the completed first phase of the pipeline will only serve production from a portion of the Swan Creek Field. Results of Operations The company recognized $295,648 in revenues from the Kansas oil and gas field and Swan Creek during the first quarter 1999 compared to $610,509 in the first quarter 1998. This reduced revenue results from the significant decrease in oil and gas prices during the first three months of 1999. Production Costs and Taxes for the first quarter of 1999 were $237,101. Depreciation, Depletion and Amortization expense for the three months of 1999 show $27,100 due to depletion of oil and gas properties associated with the Kansas production. 11 Interest Expense for the first three months of 1999 was $44,209. General and Administrative Expenses for the first quarter of 1999 increased $747,050 from the first quarter of 1998 amount of $225,574. Part of this was due to expenses related to the Kansas Properties that were not incurred until March 5, 1998. Legal and accounting fees increased $183,451 from the first quarter of 1998. This increase was due primarily to increase costs for litigation fees, the preparation and filing of documents with the Securities and Exchange Commission and Audit fees. In the first quarter of 1999 notes payable was reduced $250,000 due to the pay off of a note in that amount which was part of the settlement reached in an action pending against the Company in New York State Supreme Court entitled Hocker v. Tengasco, Inc., Index No. 601385/97. Year 2000 Risks As in the case with other companies using computers in their operations, the company is faced with the task of addressing the year 2000 issue during the year. The Year 2000 issue arises from the widespread use of computer programs that rely on two-digit date codes to perform computations or decision-making functions. The Company believes it has fully achieved Year 2000 compliance for all internal information systems. As such, management believes that Year 2000 transition of the Company's internal information systems will not have a material adverse effect on future results. Costs associated with compliance were immaterial and have been fully incurred. The Company is in the process of examining key third party relationships to determine, to the extent practical, the degree of such parties' Year 2000 compliance. The Company faces risks if key business suppliers, banks, utilities, transportation providers, communications providers or government services are not compliant for the Year 2000. In order to mitigate this risk, the Company is reviewing its options to continue operations using alternative suppliers, banks, utilities and providers of transportation and communication services. There can be no guarantee that the measures taken by the Company will solve the Year 2000 issue of such third parties. If such problems are not solved by such third parties and the Company can not locate alternative sources as outlined, this may have a significant adverse impact on the Company. 12 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 11, 1999 TENGASCO, INC. By: /s/ Robert M. Carter ------------------------------- Robert M. Carter, President By: /s/ Mark A. Ruth ------------------------------- Mark A. Ruth, Chief Financial Officer 13 -----END PRIVACY-ENHANCED MESSAGE-----