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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 June 30, 1999
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Commission File No. 0-20975
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Tengasco, Inc.
(Exact name of small business issuer as specified in its charter)
Tennessee 87-0267438
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State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization
603 Main Avenue, Suite 500, Knoxville, TN 37902
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(Address of principal executive offices)
(423) 523-1124
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(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
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 8,260,641 common shares at June 30,
1999.
Transitional Small Business Disclosure Format (check one): Yes No X
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TENGASCO, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
* Consolidated Balance Sheets as of June 30, 1999 and
December 31, 1998........................................... 3
* Consolidated Statements of Loss for the three and six
months ended June 30, 1999 and 1998......................... 5
* Consolidated Statements of Stockholders Equity for the
six months ended June 30, 1999.............................. 6
* Consolidated Statements of Cash Flows for the six months
ended June 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
</TABLE>
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TENGASCO, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, 1999 December 31, 1998
(Unaudited) (Audited)
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Current Assets:
Cash and cash equivalents $ 392,833 $ 913,194
Accounts Receivable 519,218 147,050
Other current assets 100,298 100,298
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Total current assets 1,012,349 1,160,542
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Oil and gas properties, net
(on the basis of full cost
accounting) 8,254,499 7,747,655
Pipeline facilities, at cost 4,060,904 4,019,209
Property and equipment, net 639,950 461,009
Other 122,362 137,362
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$14,090,064 $13,525,777
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See accompanying notes to consolidated financial statements
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TENGASCO, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
(Unaudited) (Audited)
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<S> <C> <C>
Current liabilities
Notes payable $ 750,000 $ 1,000,000
Loans payable to affiliates 163,800 413,800
Due to AFG Energy, Inc. (Note 3) 859,833 953,895
Current maturities of long-term debt 77,334 89,135
Accounts payable-trade 765,721 351,567
Accrued liabilities 152,088 281,360
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Total current liabilities 2,768,776 3,089,757
Due to AFG Energy, Inc. (Note 3) 1,005,245 976,207
Long term debt, less current maturities 2,351,360 2,214,723
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Total liabilities 6,125,381 6,280,687
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Stockholders' equity
Convertible redeemable preferred; redemption value
$1,488,900; 14,889 shares outstanding 1,488,900 800,000
Common stock, $.001 per value, 50,000,000 shares
authorized 8,186 7,644
Common stock to be issued 0 700,000
Additional paid-in capital 19,033,232 16,796,038
Unamortized stock award (162,500) (162,500)
Accumulated Deficit (12,403,135) (10,496,092)
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7,964,683 7,645,090
Due from stockholder 0 (400,000)
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Total stockholders' equity 7,964,683 7,245,090
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$ 14,090,064 $ 13,525,777
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</TABLE>
See accompanying notes to consolidated financial statements
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TENGASCO, INC.
CONSOLIDATED STATEMENTS OF LOSS
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended For The Six Months Ended
June 30 June 30
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1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Oil and gas revenues $ 724,888 $ 480,551 $ 1,020,536 $ 1,091,060
Costs and other deductions
Productions Costs and Taxes 642,888 530,360 879,989 795,847
Depletion, depreciation and amortization 27,100 118,214 154,200 241,043
Interest expense 257,245 96,736 301,454 169,452
General and administrative costs 467,242 779,503 1,214,292 1,143,528
Legal and Accounting 194,193 47,725 377,644 167,803
Realized loss on sale of investments 0 (33,008) 0 (18,180)
---------- ----------- ------------ ------------
Total costs and other deductions 1,588,668 1,539,530 2,927,579 2,499,493
---------- ----------- ------------ ------------
Net loss $ (863,780) $(1,058,979) $ (1,907,043) $ (1,408,433)
---------- ----------- ------------ ------------
Basic and diluted loss per common share $ (0.10) $ (0.15) $ (0.24) $ (0.20)
========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
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TENGASCO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
<TABLE>
<CAPTION>
Convertible Unamortized
Redeemable Common Stock Common Additional Stock
Preferred ------------------- Stock Paid In Option Accumulated
Stock Shares Amount Issuable Capital Awards Deficit
----------- ------ ------ -------- ------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
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 616,429 542 (700,000) 2,237,194 0 0
private placements
Convertible preferred stock
issued in private placements 688,900 0 0 0 0 0 0
Amortization of stock 0 0 0 0 0
option awards
Common stock options granted to
non employees 0
Placement fees paid in well 0
working interests
Net loss for the six months
ended June 30, 1999 0 0 0 0 0 0 (1,907,043)
---------- ---------- ------- --------- ------------ --------- -------------
Balance, June 30, 1999 $1,488,900 $8,260,641 $ 8,186 $ 0 $ 19,033,232 $(162,500) $ (12,403,135)
========== ========== ======= ========= ============ ========= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements
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TENGASCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30 1999 1998
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<S> <C> <C>
Operating activities
Net loss $(1,907,043) $(1,408,433)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depletion, depreciation and amortization 154,200 241,043
Compensation paid in stock options 0 91,742
Changes in assets and liabilities
Accounts receivable (372,168) (165,939)
Other current assets 0 113,390
Accounts payable 414,154 222,376
Accrued liabilities (129,272) 78,954
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Net cash used in operating activities (1,840,129) (826,867)
Investing activities
Changes to property and equipment (178,941) (62,312)
Changes to oil and gas properties (606,844) (786,186)
Changes to pipeline facilities (41,695) (1,338,675)
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Net cash used in investing activities (827,480) (2,187,173)
Financing activities
Proceeds from borrowings 215,595 35,485
Repayments of borrowings (294,983) (3,701,422)
Proceeds from issuance of stock 0 19,141
Proceeds from sale of oil and gas properties 0 80,000
Proceeds from private placements of common stock 1,537,736 2,403,713
Proceeds from Private Placement of Preferred stock 688,900 0
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Net cash provided by financing activities 2,147,248 (1,163,083)
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Net decrease in cash and cash
equivalents (520,361) (4,177,123)
Cash and cash equivalents, beginning of period 913,194 4,451,274
Cash and cash equivalents, end of period $ 392,833 $ 274,151
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</TABLE>
See accompanying notes to consolidated financial statements
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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 six months ended June 30, 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.
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4. In accordance with SFAS No. 128, "Earnings Per Share", basic and diluted
loss per share are based on 7,846,179 weighted average shares outstanding
for the quarter ended June 30, 1999 and 7,181,062 weighted average shares
outstanding for the quarter ended June 30, 1998. There were 475,827 and
497,969 potential weighted common shares outstanding at June 30, 1999 and
June 30,1998 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, 2000. 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.
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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 thru the second 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 six months of 1999 include additions of
$606,844 to oil and gas properties, $178,941 additions to property and
equipment, and $41,695 for TVA right of ways and reclamation of the Company's
pipeline in Tennessee. 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 June 30, 1999 decreased $520,361 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 $606,844.
o Net cash used in Operating Activities was $1,840,129 which is shown in detail
on the Statement of Cash Flows.
Proceeds from private placement of 616,429 shares of the Company's common stock
and 6,889 shares of the Company's Series A 8% cumulative convertible preferred
stock during the first six months of 1999, totaled $ 1,537,736 and $688,900,
respectively.
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The Company's plan of operations for the next twelve months calls 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 $724,888 in revenues from the Kansas oil and gas field
and Swan Creek during the second quarter 1999 compared to $480,551 in the second
quarter 1998. This increased revenue resulted from the significant increase in
oil and gas prices during the second quarter of 1999. Production Costs and Taxes
for the first six months of 1999 of $879,989, was slightly higher compared to
$795,847 in the second quarter of 1998. Depreciation, Depletion and Amortization
expense for the first six months of 1999 was $154,200, compared to $241,043 for
the first six months of 1998, this difference was due to the 1998 depletion
estimate being overstated.
Interest Expense for the first six months of 1999 was $301,454, as compared to
$169,452 in 1998, this difference is due to interest on new loans and 8%
dividend paid on the Company's Series A cumulative convertible preferred stock.
General and Administrative Expenses for the first six months of 1999 increased
slightly, $70,764 from the first six months of 1998 amount of $1,143,528.
Legal and accounting fees increased $209,841 for the first six months of 1999.
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 six months 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.
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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 cannot locate alternative sources as outlined, this may
have a significant adverse impact on the Company.
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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: August 12, 1999 TENGASCO, INC.
By: /s/ Robert M. Carter
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Robert M. Carter, President
By: /s/ Mark A. Ruth
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Mark A. Ruth, Chief Financial Officer
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